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Borden, John 


An essay on value 




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Borden, John, 1825-1919. 

All essay on value, with a short account of American 
currency, by John Borden. Chicago, Rand, McNallv & 
CO. il897] 

232 p. 19'". 

L Value. 2. Money— U. S.— Hist. 

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School of Business 






A Short Account 








i66-i68 Adams Street. 


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A Short Account 






166-168 Adams Street. 





Copyright 1897, 

John Borden. 

iA// Rights Reserved.) 



I. Utility, - 

II. Use Value, g 

III. Relative Value, 22 

IV. Exchange Value, 23 

V. Market Value, 32 

VI. Natural Value, 52 

VII. Money Value, j^q 

VIII. American Currency, 148 

A National Currency, i^g 


In economics a correct idea of value is said to 
be of the utmost importance ; for from no source 
do so many errors and so much difference of 
opinion in that science proceed as from the vague 
ideas which are attached to the word value. 
(Ricardo, Chap, i.) The meaning of the word 
utility seems to lack precision also, and because 
of its relation to the word value will be first 



Utility has been defined as a capacity to satisfy 
a desire, or serve a purpose ; and wealth has been 
defined as utilities embodied in material objects. 
As thus defined, the utility of a thing is supposed 
to be inherent in it, and is a constant quantity ; for 
the potential capacity of a thing to satisfy a want 
or serve a purpose would exist and continue to be 
the same whether the want or purpose existed or 
not. A pound of iron, a bushel of grain, or a 
yard of cloth would contain as much utility at 
one time and place as at another ; as much in the 






hands of its producer as in those of a consumer, 
and, in fact, the same amount, whether there was 
a consumer at all or not ; the utility of coal would 
be no more increased by carrying it from than to 
Newcastle. A superfluity of anything would 
contain as much utility, per unit of quantity, as a 
scarcity. A gallon of water would contain a cer- 
tain quantity of utility, and a deluge an infinite 
quantity of it. The relative utility of any two 
commodities per units of quantity would be the 
same everywhere and to everybody ; the relative 
utility of grain and cloth would be the same in 
Dakota as in New England. In every exchange 
there would be a transfer of equal or unequal 
utilities ; in the first of which cases neither party 
would gain anything, and in the second, one 
party would gain and the other lose. 

The same thing has a capacity to be injurious 
as well as useful. A small quantity of water will 
quench a man's thirst or suffocate him ; a small 
fire will warm him or burn him seriously. 
Where is the utility of water in floods, fire in a 
conflagration, or air in a cyclone ? 

A capacity to satisfy a desire or serve a purpose 
implies the existence of the use or purpose and 
has a relation thereto ; even a potential utility has 
reference to a potential use or purpose. Since 
the actual utility of an object depends upon the 
existence of a demand for it, the degree of its 
utility, per unit of quantity, depends upon how 
much it is wanted ; therefore, actual utility is a 


variable and not a constant quantity ; and the 
relative utility of any two things, per units of 
quantity, varies from time to time and place to 
place, to the same person, and to different 

Using the word utility in a loose, general, and 
indefinite sense, it has been said that : '* The util- 
ity of an object consists in its quality of being 
useful for human purposes generally, and the 
degree of its utility is to be measured by the 
importance of such purposes," and, therefore, 
" water, coal, or iron is more useful than alcohol, 
gold, or diamonds." 

While this may be useful information, it is more 
important to everyone to determine from time to 
time the relative utility to him, per units of 
quantity, of any two commodities than to ascer- 
tain that one of them is more useful than the 
other for human purposes generally. In fact, 
everyone, in dealing with commodities, consults 
his own interest and acts on his own behalf; and 
to that end he estimates their relative utility to 
him for specific amounts of each at the time, and 
from time to time, and does not govern his con- 
duct by any loose notions which he or others 
may entertain as to their general utility to man- 
kind. If he had a hollow tooth, he would prob- 
ably consider enough gold to fill it and preserve 
the tooth to be more useful to him for that pur- 
pose than a ton of water, coal, or iron ; or, if he 
required a certain quantity of alcohol for some 





purpose in the arts or in medicine, for which 
alcohol was suitable and water unsuitable, that 
alcohol was more useful to him for that purpose 
than water. A coat would evidently be more 
useful to a man who had none, especially in 
winter, than to a dealer in coats who had more 
than he could use or sell ; and a loaf of bread 
would be more useful to a hungry man than to a 
baker who had an overstock. So, also, a surplus 
of grain and provisions would be less useful to 
their producers than to others who lacked food 
and needed such supplies ; also, a surplus of cloth 
and hardware would be less useful to their 
producers than food and other things which they 
wanted. And if a person had more of those 
things which are called necessaries than he could 
use or consume before they would spoil or decay, 
he might justly consider a useless, cumbersome* 
and perishable superfluity of them to be of less 
utility to him than a comparatively small quan. 
tity of gold, or even an imperishable and brilliant 



Anything which can satisfy a man's desire 
need, use, or purpose-that is to say, his want or 
wants—has value to him, or a use value ; which 
phrase is here employed to signify the value of 
a thing to one person only, or to each person 


separately. Value is not inherent in a thing, 
for the want is external to it. A want, as hunger 
or thirst, can exist in the absence of any means 
to satisfy it ; but in the absence of any want, use, 
or purpose to which a thing can be applied, it 
has no actual value, and any such quality which 
may be imputed to it is merely potential or 
imaginary. In fact, value exists only when there 
is a want and a means available to satisfy it. 
Treasure sunk in the ocean has no actual value ; 
to a man in a desert, water in the clouds or else- 
where has no actual value. The Garden of Eden 
had an actual value to Adam while he was in it, 
and only a potential value to him after he was 
put out of it. 

A thing may have a use value for the purpose 
of satisfying an imaginary want; quack medi- 
cines may cure imaginary ills, and furnish cheap 
substitutes for the bones and relics of the saints, 
holy shrines, pretended relics of the true cross, 
and the holy coat of Treves. Formerly the cata- 
combs of Rome had nearly as great a value to 
the Church as her treasury of good works. If 
the owner of a gem finds that it is bogus, or of a 
picture that it is a copy, its value to him declines. 
When the turquoise ceases to be a talisman 
against the " evil eye," the stone will lose in use 
value to the Persian ; so, also, as to all fetiches, 
charms, and amulets. 

The value of a thing to anyone includes all the 
uses and purposes to which it can be applied by 



him; e . g., grain has a use value for seed, food, 
manufacture, and also for the purpose of exchange 
for other things. Also, the same thing may have 
a value to different persons for different purposes. 
The value of a commodity to a merchant lies in 
the profit which he can obtain by dealing in it, 
while the value of opium, tobacco, coffins, or any 
other thing to its consumer is quite different. 
The product of one person may be the tools or 
raw material of another. A thing may have a 
present value for the purpose of satisfying a 
future want. A prudent man provides before- 
hand for his future wants, especially those which 
ire recurrent and involuntary ; and, therefore, he 
stores away corn in his granary, food in his 
larder, and riches in his treasury, because of their 
value to him for consumption and exchange, 
present and prospective. 

Use value is a variable quantity : The supply 
and the demand are both variable. 
The supply varies: 

In quality — A good timepiece is more useful 
than a poor one ; cloth may be all wool or partly 
waste or shoddy. Nearly all commodities vary 
in quality. There are more than loo grades of 
wool; the same fleece sorts into seven or more 
qualities. In the Chicago market there is red 
and white wheat, winter and spring, divided into 
about twenty grades ; of Indian corn there are ten 
grades; oats, six grades; barley, five grades; butter, 
six or more grades ; cattle of numerous grades. 



In quantity — The supply may vary from noth- 
ing to a superabundance. There may be too 
much of such a useful thing as water. A person 
may have no food, or barely enough to sustain 
life, or more than he can consume before it 
will spoil. In some parts of the country, when 
newly settled, Indian com has been used for 
fuel, and fruit so abundant as to be left to rot 
on the ground; the potato crop of 1895 was so 
abundant as not to be worth digging in places 
remote from market, being worth at Chicago, in 
the early spring of 1896, about 16 cents per 
bushel by the car load. Formerly, in Australia, 
the surplus carcasses of sheep were used for fuel 
and the ashes sold as a fertilizer ; and surplus 
cattle in South America had no value except for 
their hides and tallow. An excess of anything 
beyond what its owner can use or consume him- 
self before it will spoil or decay, has no value to 
him except to exchange for something else which 
he wants or desires. 

The demand varies : 

A person may be more hungry or thirsty at 
one time than at another, or want clothing more 
when it is cold than when it is warm. He usually 
wants any necessary, useful, or agreeable thing 
more when he has none of it than when he is 
partially supplied. Beyond the point of neces- 
sity, the intensity of his desire usually decreases 
as the supply increases up to the limit of extreme 



Use Value, Its Existence and Degree, 

Its existence depends solely upon a demand 
and an available supply, and not upon the source 
of the supply or its cost of production. 

Cost is the sacrifice made to procure a thing ; 
value is the benefit which can be derived from it, 
which is the same whether the thing costs much, 
little, or nothing. Water derived from the 
clouds or a living spring has the same value to 
quench thirst, or for any other purpose, as if the 
same water had been filtered or distilled out of 
some solution. A lump of gold has the same 
value to its finder as if he had obtained it after 
great labor. A coat will keep a man as warm if 
it be a gift as if it were acquired at great cost. 
Cloth woven on a hand-loom has no greater value 
than if the same cloth had been woven on a 
loom propelled by wind, water, or steam. No 
sensible person would consider the same thing 
to be of greater value to him merely because it 
was produced at great cost. If a thing is not 
wanted it has no actual value, whether its cost 
was much or little. 

But a demand converts a potential into an 
actual supply. "The paving of the streets of 
London enabled the owners of some barren rocks 
on the coast of Scotland to draw a rent from 
what never afforded a rent before ; also, the for- 
ests of Norway found a market in Great Britain 
which they could not find at home ; also, the sur- 



plus wool of England found a market in Flan- 
ders, and, after the Union, the Highland cattle 
found a market in England ; those bred on the 
most uncultivated moors, in proportion to their 
weight and goodness, brought the same price as 
those raised upon the most improved land." 
(Wealth of Nations.) 

The degree of the use value of a supply, per unit 
of quantity, depends solely upon its quality, and 
its quantity relative to the demand for it, increas- 
ing with its quality and decreasing as its quantity 

Quality may be due to soil and climate, as in 
fruits, cotton, coffee, etc.; or to lapse of time, 
which improves coffee, wine, and distilled liquors, 
and injures fruit, meat, and other things ; or to 
the care, skill, and honesty exercised in the pro- 
duction of a thing. 

Scarcity and abundance have the same effect 
upon the degree of use value, whether the cause 
is natural or artificial, as a siege, blockade, or a 
comer in the article. In Egypt, during the 
years of plenty, food was of little worth ; but 
during the years of scarcity Pharaoh acquired all 
the property of the Egyptians and reduced them 
to slavery, although there was grain enough in 
Eg^pt to feed its people, and also to supply others. 

Wants. Adam Smith said : "A man is rich 
or poor according to the degree in which he can 
afford the necessaries, conveniences, and amuse- 
ments of human life." 



A savage and a civilized man differ in their 
notions about wealth. To each of them food and 
dnnk of some kind are clearly necessaries ; cloth- 
ing and shelter may not be, for a part of mankind 
go naked and lie on the ground. As a man 
acquires knowledge his views alter and his wants 
multiply. Knowledge discovers needs and wants 
and also the means to satisfy them. The first hut 
was a luxury ; the first clothing, the first fire the 
first salt, etc. 

During - the ages of faith " those who aspired 
to be saints believed in mortifying the flesh. 
Some never washed themselves, nor disturbed 
the vermin with which they were infested ; so 
far as they caused pain they were increasing the 
stock of the aspirant s merits ; that treasure which 
he was laying up in heaven. Greater knowledge 
has caused piety to assume a more rational form. 
It IS not now deemed essential to a saint that he 
should be dirty and lousy, or a nest of microbes 
and bacteria, nor that the temple of God should 
be a chamel house. Now the wise man prefers 
a good house well aired to a cave or a hole in the 
ground ; food in wholesome variety, well cooked, 
to raw fish or flesh ; suitable and clean clothes to 
dirty rags and skins ; and is glad if he can justly 
acquire the means to satisfy his voluntary and 
involuntary, natural and acquired, present and 
prospective, real and imaginary wants. 

Cost and Use Value, If nature had supplied 
everything which is wanted, as a free gift, every 



want would find full satisfaction in a gratuitous 
supply. But when the acquisition of a thing 
involves cost, the demand for it becomes stinted 
towards the point where it would be as easy to 
endure the want, or so much of it as remained 
unsatisfied, as to gratify it. If a person feels a 
want, as hunger or thirst, it causes pain ; and if 
he has not the means at hand to satisfy it, the 
want impels him to undergo the sacrifice neces- 
sary to obtain the requisite supply. This sacrifice 
also causes pain. By labor a man is said to lay 
down a part of his ease, liberty, and happiness ; 
by outlay he parts with what cost him something to 
acquire, and deprives himself of the benefit which 
he might otherwise obtain from it. Every sen- 
sible person usually considers how great a sacrifice 
he must make in order to gratify his various 
wants, and as the price which he must pay seems 
to him to be greater or less than its reward he acts 

The sensations produced by a want, by its 
gratification, and by the cost of appeasing it, are 
not the same to every person, for men differ in 
their mental and physical powers, natural and 
acquired ; they differ not only in ability, but in 
their feelings, tastes, and inclinations. Even a 
future want renders an industrious and frugal 
man nervous and unhappy until he has made 
provision for it. He anticipates his future wants, 
and will not wait until the spur of necessity is 
actually applied ; for experience teaches him that 





it requires time as well as effort and sacrifice to 
obtain the requisite supply ; and he is unwilling 
to rely on chance, charity, or theft to supply his 
wants as they occur. Other persons can not 
restrain their desires, have no frugality, and live 
in poverty because of their wasteful extravagance. 
Others regard labor as a dreadful sacrifice, and 
will suffer for want of food, clothing, and shelter 
rather than undergo the great pain which they 
would suffer in order to satisfy their wants by 
their own industry. The Pilgrims landed among 
the rocks of New England in December, 1620; 
they were assisted to migrate, but by 1637, if not 
earlier, they were taxing themselves to support 
the poor, and afterwards indulged in expensive 
litigation as to which town ought to support some 
particular pauper. Now he travels not only from 
one town to another, but from Maine to Oregon, 
having no use for a tract of wild land, unless for 
the scenery, although offered as a gift. In 1894 
crowds of tramps seized railroad trains and 
marched on Washington, feeding on the industry 
of the country by the way. At Chicago, during 
the winter of 1 893-4, with bricklayers* wages at 
50 cents an hour; carpenters', 35 cents an hour; 
common labor at $1.50 to $1.75 for an eight-hour 
day; patent flour at $4.50 per barrel; ** bakers'" 
ditto at half that price, and thousands of dram 
shops, each paying a license of $500 per annum, the 
Relief and Aid Society called upon the charitable 
for about $2,300 per day to support the needy. 

Formerly a very rich man said, the drunkard and 
the glutton come to poverty, and sloth clothes a 
man in rags and his family also. 

It is asserted that wealth would yield the 
greatest amount of happiness if it were equally 
divided; how often a redivision would be nec- 
essary in order to maintain the equality is not 
stated. But one might surmise that, if those 
who love industry and frugality the most were 
required to acquire the wealth, and those who 
derive the greatest enjoyment from its consump- 
tion and who love labor and frugality the least, 
were employed as consumers, a much greater 
sum of happiness might be realized. Heavy tax- 
ation of everybody who has anything renders this 
scheme quite feasible. 

It is said that "the real price of everything, 
what everything costs to the man who wants to 
acquire it, is the toil and trouble of acquiring it." 
But neither this price nor the value of the thing 
when acquired is the same to everybody. One 
person may want a thing more than another, 
acquire it for less, and obtain a greater satisfac- 
tion from it. The same person does not always 
obtain the same thing at the same cost. A hunter 
or fisherman would undergo the same amount of 
toil and trouble whether he killed or caught any- 
thing or not ; so also with a miner whether he dug 
in rich or barren ground ; or a farmer whether 
his crop was good or poor. A person engaged 
in any occupation after a certain period of time 



would form his opinion whether his total reward 
compensated him for the total sacrifice; and what- 
ever was the result he would adopt an easier or 
more lucrative occupation if he could find it. In 
some way satisfactory to himself he might strike 
an average, and thereupon say that in the ordinary 
state of his health, strength, and spirits, in the 
ordinary exercise of his skill and dexterity, and 
in the usual degree of hardship caused by the 
elements, the nature of the business and other- 
wise, he obtained an average reward for an 
average sacrifice. But the standard by which 
he measured and compared the two would not 
measure the same amount of cost or reward to 
others who were unlike him, each of whom would 
have an equal right to compare his sacrifices with 
his enjoyments and to act accordingly. 

In the science of political economy it is assumed 
that all men are exactly alike, or so near alike 
that any differences between them may be ig- 
nored. This fallacy makes the science unsound ; 
the subject may be thereby simplified and made 
easy for new beginners, but the reasoning founded 
upon this false assumption fails to apply to the 
facts as they exist. 

Adam Smith said that the difference of natural 
talents in different men is in reality much less 
than we are aware of ; that the difference between 
a philosopher and a street porter, for example, 
seems to arise, not so much from nature as from 
habit, custom, and education ; that the two from 



nature are not half so different as a mastiff is 
from a greyhound, or it from a spaniel, or this 
last from a shepherd's dog. But since there is a 
material difference between an idiot and a Sir 
Isaac Newton, and between a Samson and one 
who has the rickets, with gradations between 
the two extremes, and a great difference between 
races or breeds of men, it is immaterial whether 
the difference from nature between men is less 
than It is between dogs. The difference between 
Napoleon and the generals he defeated was not 
due to custom, habit, and education ; the differ- 
ence between General Grant and other generals 
who were total failures was a material and natural 

A pereon of equal authority with Adam Smith, 
to wit the Pope, in his encyclical letter on the 
Condition of Labor, says it is impossible to reduce 
human society to a level, because there naturally 
exist among mankind innumerable differences of 
the most important kind; that people differ in 
capability,in diligence. in health.and in strength 
This being manifestly true, the Pope, by his letter 
knocked the " hypothetical economic man " in the 

o^v ^? r "''f'^ ^^^^ ^y^*^" o* political econ- 
omy which IS founded on the tacit or express 

^bhufr '""^'f '"^•^ ^'^ exactly alike, to merl 
rubbish fit only for the dunghill. 

Among mankind there naturally exist all sorts 

Tu<^ tL'n i- °^ '""'' ^ ^^^°' E«^"' Canaan, 
Judas, the prodigal son. the wicked husbandmen 





and the idle servant who hid in the earth the 
talent entrusted to him. Eternal happiness is 
offered to all, but many are unwilling to pay the 
price for it. 

Much ingenuity has been expended in devis- 
ing schemes whereby everyone will suffer an 
equal amount of sacrifice for an equal amount of 
satisfaction. Instead of allowing everyone to 
measure and compare the two for himself, it is to 
be done for him ; he must perform an allotted task 
for an allotted reward, whether he is willing or 
not. Socialism proposes to establish equality 
among unequal men by reducing them to the 
dead level of slavery. Society is to be recon- 
structed ; personal liberty abolished ; all land and 
capital put in the hands of the managers of the 
scheme, who will determine what things are 
** socially necessary," and by their subalterns com- 
pel everybody to perform the task assigned to 
him. The confiscation of all private property is 
the attractive bait held out by those who in the 
grand social upheaval expect to be on top. 
Robespierre, Marat, and the Jacobin Club pro- 
fessed to be great philanthropists. The central 
aim of socialism is said to be justice. Ignoring 
the difference which exists among men, sacrifice 
is to be measured by a unit of labor time, for 
which everyone is to receive the same wages. 
But if an hour's labor in one occupation ought to 
count for more than in another, the managers of 
the scheme will measure the difference, and not 

every person for himself. The things deemed 
"socially necessary" having been determined by 
them, the laborers must do the work whether 
they are willing or not, for otherwise society 
would suffer. In a state of freedom, self interest 
is the goad, and every person can prick himself 
much or little ; in a state of slavery, the master 
and overseer apply the goad. Another method of 
accomplishing justice is to compel the production 
of those things deemed "socially necessary," and 
to divide the net proceeds among consumers in 
proportion to their reasonable needs, or in pro- 
portion to consumptive instead of productive 
power, the managers of the scheme, however, to 
determine what are reasonable needs. By some 
people freedom is highly esteemed; but the 
Israelites, although fed from heaven, wept when 
they remembered the fish, cucumbers, melons, 
leeks, onions, and garlic on which they were fed 
by their masters in Egypt. 

If society is to be regimented, and everybody 
compelled to work under overseers, it would seem 
to be good economy to vest the management of 
the scheme in the priesthood ; for then every per- 
son's eternal and temporal welfare would be 
secured by the same piece of machinery. Then 
ever>^one might find a subsistence somewhere 
about the soup kitchen of the national workhouse 
and at the same time feel assured of beinj 
at least a small angel in the world to come. 

Although it may be true, since the Pope says 







so in his letter, that in a state of innocence every- 
body would practice industry as their free choice 
and delight, yet in the present state of depravity 
labor among the thorns and thistles is unequally 
arduous. When labor became a cause of sorrow 
it fell heaviest on ignorance and stupidity. Those 
who could do mental labor soon employed beasts 
to perform physical toil, and thereafter harnessed 
the forces of inanimate nature. These are now 
doing labor more and more ; mental labor causes 
the senseless machine to become automatic. The 
chief source of wealth is mental, not manual 
labor. A social organism would be a strange sort 
of an octopus, all legs and arms, and no head. 



The essence of value being satisfaction, the 
use values of different things are of the same 
nature, and may be compared with each other as 
to quantity. Such comparison brings into view 
their relative use value. Commodities of a uni- 
form grade or quality are usually measured as to 
their quantity by units of number, length, area, 
bulk, weight, etc. If at any time and place a cer- 
tain number of units of one commodity had an 
equal value to a person with a certain other num- 
ber of units of some other commodity the ratio 
of the relative value of the two quantities to him 

at such time and place would be unity; if he 
considered the two quantities to be of equal value 
to him, no reason would exist why he would pre- 
fer the one to other. 

Relative value is variable. The use value of 
every commodity per unit of quantity being vari- 
able, their relative value is also variable, varying 
from time to time and from place to place. 

To the same person; for if he had more food 
than he could consume and no clothes, their rela- 
tive value to him would be different from what 
it would be if he had a superfluity of clothes and 
no food. 

As between different persons; for if one were 
hungry and the other thirsty, the relative value 
of food and drink would not be the same to each 
of them ; at some other time their condition as to 
the two things might be reversed. 



When different things are exchanged between 
their respective owners such things are said to 
have exchange value. 

The existence of this quality depends upon a 
difference in the relative value of the things 
exchanged to the respective parties and their 
right to make the transfer. Every person esti- 
mates for himself the relative pressure of his 





wants and the relative value to him of the means 
necessary for their satisfaction. Market value 
is the combined result of the individual opinions 
of the buyers and sellers. 

In every exchange each party gives what he 
considers to be the comparatively superfluous for 
the comparatively necessary, and expects to gain 
in value to him by the exchange ; for otherwise 
he would act without a motive. If a person has 
more of anything than he requires for his own 
use, and is in want of something else, some of 
the former may well be of less value to him than 
some of the latter. By an exchange the owner 
of a thing, although it may be a useless superflu- 
ity to him, can make it worth to him as much as 
what he can obtain in exchange for it ; how much 
this will be depends on his trading capacity and 
value sense. Fraud, deceit, a lack or mistake of 
judgment may cause a loss where a gain was 
expected. A person may pay too much for his 
whistle, too much for green spectacles, or even 
sell his birthright for a mess of pottage. But 
everyone who is at all competent to take care of 
himself usually gains more or less by an ex- 
change. If he thinks a surplus m bushels of 
grain are of less value to him than n yards of 
cloth, he is usually correct in his opinion. 

Neither party is satisfied with a mere balance 
of relative value to him, but strives to g^ve the 
least and get the most possible. Hence, an 
exchange is usually preceded by a negotiation, 

during which each party has the benefit of the 
other's opinion as to the quality of the articles 
and their value ; when each party believes that 
he has reached the best terms he can make for 
himself, and that he can do no better by dealing 
with some other person, a bargain is struck upon 
a basis finally agreed upon. It is naught, it is 
naught, saith the buyer ; but when he is gone his 
way then he boasteth. 

Ratio of exchange is the basis upon which an 
exchange is made ; as if m units of one com- 
modity are exchanged for n units of another, their 
ratio of exchange in that transaction is ^ or ™ ; or, 
a unit of the former buys ^ units of the latter, and 
a unit of the latter buys ^ units of the former. 
Such is the degree of exchange value, or relative 
purchasing power of each of the commodities in 
the case supposed. In other exchanges of the 
same commodities between other persons, or 
between the same persons at another time or 
place, their ratio of exchange in large or small 
quantities would probably be ^ Even if the 
same commodities of any certrin ^rade or qual- 
ity always exchanged, at wholesale or retail, at a 
certain ratio, e. g. ^, the exchanges would not be 
made on the basis of equivalents. If neither 
party gamed anything, both parties would act 
^^'ithout a motive. But the fact is, ratio of 
exchange varies with the parties concerned, and 
irom time to time and from place to place 



If an exchange were made between A, the 
owner of a horse, and B, the owner of sheep, on 
the basis of the horse for twenty sheep, such basis 
would not fix a ratio of exchange between all 
horses and sheep as to other persons, nor as to A 
and B even as to the same horse and sheep at 
some other time and place ; for then A might 
need or want the horse more than the sheep, and 
B the sheep more than the horse. At one time, 
according to Shakespeare, King Richard was in 
great need of a horse. 

At an exchange as above supposed, the 
bystanders would probably differ in their opin- 
ions as to the relative value of the animals ; one 
might say that eighteen of the sheep were worth 
as much as the horse, and another that the horse 
was worth two dozen of such sheep. The trans- 
action, however, would prove that A then con- 
sidered the twenty sheep to be of greater value to 
him at that time than the horse ; and that B 
considered the horse to be of greater value to him 
at that time than the sheep ; both of them might 
be correct in their opinions. If A would have 
preferred nineteen of the sheep to the horse, and 
B the horse to twenty-one sheep, each of them 
would consider that he had gained by the 


Title is the other element which is essential to 
the existence of exchange value. An exchange 
between two persons, neither of whom had any 
right to the respective articles proposed to be 



exchanged, nor power to confer any, can not be 
made, unless possibly between two thieves, who 
might thereby transfer to each other their respec 
tive possessory rights. Therefore, if a thing is 
not property, it can not have exchange value ; 
and any such value which might be imputed to it 
would be merely potential or imaginary; and any 
reasonmg about such value would be mere idle 

But if a thing has an owner, and it is not 
obtamed from him by robbery, theft, or as a gift 
It becomes necessary, in order to induce him to 
part with it, to offer him something which he will 
consider to be more valuable to him in exchange 
for It. Its acquisition by this method would be 
impossible to a person who possessed nothing 
which the owner of the coveted object would 
accept in lieu of it. A demand for anything 
belonging to another, in order to be effectual 
must be backed up by a supply of something 
which such other person wants more than the 
thing demanded. 

Property is defined to be : That which belongs 
exclusively to a person, that to which he has a 
legal nght, a thing owned ; also, as the exclusive 
right of possessing, enjoying, and disposing of a 
thing ; ownership. The essence of property con- 
sists of rights, although the word is applied both 
to the thing and to the right to it. Value is 
impaired or fades away if a person is not secured 
and protected in his personal and property rights 





In fact, rights are essential to value ; for a thing 
can not have an actual use value to a person 
unless he has a right or power to appropriate it 
in satisfaction of his wants. Food can not satisfy 
hunger unless there is a right or power to eat it ; 
nor clothing satisfy the need for it unless there is 
a right to wear it. An actual supply implies the 
right or power to make the demand effectual. 

An owner has the exclusive right to possess, 
enjoy, and dispose of ^n object of desire to the 
extent of his right to it. If all such objects 
belonged to nobody, none of them would have any 
exchange value, nor any actual use value until 
they were appropriated by some one. A science 
of wealth requires some assumed basis of personal 
and property rights. Any system of socialism, 
communism, or anarchism must have as its basis 
a system of personal and property rights to cor- 
respond therewith. What a man shall have a 
right to do ; what shall be his acquisitions, if any; 
and to what extent he shall be protected in his 
life, liberty, and property, are matters of essential 
importance in any inquiry into the nature and 
causes of wealth. The word wealth is often used 
as synonymous with possessions and property. A 
thing, however, may be property and not wealth ; 
for if a thing has lost its value by use and wear, 
or decay, it would continue to be property until 
its owner saw fit to abandon it. 

The fact that ownership is essential to the 
existence of exchange value affords an explana- 

tion of what has been called a paradox. Adam 
Smith said : " The things which have the greatest 
value in use have frequently little or no value in 
exchange ; and, on the contrary, those which have 
the greatest value in exchange have little or no 
value in use. Nothing is more useful than water ; 
but it will purchase scarce anything ; scared any- 
thing can be had in exchange for it. A diamond, 
on the contrary, has scarce any value in use ; but 
a very great quantity of other goods may fre- 
quently be had in exchange for it." 

Water running loose and open to everybody 

can not have any exchange value, nor any use 

value, until it is appropriated by some one. When 

water is property, as a flow available for irrigation, 

a water power, or a city supply, it has exchange 

value just the same as other property, the degree 

of its exchange value being dependent upon the 

amount of its supply relative to the demand for 

it. In Chicago, with a vast body of fresh water 

in front of it, spring water from Wisconsin is sold 

like other goods, it being asserted and believed 

by some that the Wisconsin water is purer than 

the lake water. Various kinds of water in barrels 

and bottles are sold everywhere. Water, in the 

form of ice, is regularly sold at wholesale and 

retail. Ice formed on the surface of a pond or a 

running stream is often sold by the owner of the 

soil like any other crop. The wicked men 

drowned in the deluge, and who went to a place 

of torment, had reason to say nothing is more 







injurious than water, except fire. If diamonds 
and water are property, their relative value, per 
units of quantity, depends upon the same consid- 
erations as those which apply to any other kinds 
of property. 

Measure of Wealth. Everyone estimates his 

property by its value to him ; i. e., by the benefit 

and satisfaction which he can derive from it, or 

obtain by means of it. If he uses or consumes a 

thing himself, its benefit is direct ; if he exchanges 

it for something else, its benefit is indirect. The 

value of any superfluity which he may possess, or 

of anything having a less value to him than other 

things which he may need or desire, by means 

of an exchange is made equal to the value to him 

of those things which he obtains in lieu of it, less 

the cost of making the exchange. Commodities 

are produced partly, and often entirely, for the 

purpose of sale, it being only a part of those 

things which one needs or desires that he can, or 

at least does, produce himself. Therefore, where 

markets exist and sales are constantly made, it is 

usual for everyone to measure his wealth by its 

purchasing power, such being the best practical 

approximation to a correct measure of its use value. 

But it has been said that wealth is properly 
measured by quantity of commodity, and not by 
its exchange value ; that, " a man is rich or poor 
according to the abundance of necessaries and 
luxuries which he can command, and whether the 
exchange value of these for money, com, or labor 

be high or low, they will equally contribute to the 
enjoyment of their possessor." As to this it may 
be said that if a man had at all times a crisp and 
fresh stock of the best quality of everything in 
quantity sufficient to fully satisfy all his wants, it 
would be immaterial to him whether his riches 
had any exchange value at all or not. But not 
having an abundance of that kind, he would be 
rich or poor according to the abundance of neces- 
saries and luxuries which he could command, and 
the quantity of them which he could command 
would depend upon the purchasing power of his 
riches. If he possessed at any time an abundance 
of necessaries and luxuries, such of them as he 
could not use or consume before they spoiled or 
decayed would have no value whatever to him 
except to the extent of their purchasing power. 

If wealth were measured solely by quantity 
of commodity, and not at all by its exchange 
value, every such quantity would measure the 
same when and where it was a superfluity as 
when and where it was scarce and in demand. A 
superabundance would be proportionately greater 
wealth than any less amount. Ever>' product 
would measure as much wealth in the hands of its 
producer as in those of the consumer. Wheat in 
Dakota, beef and pork in Kansas, cotton in Ala- 
bama, cloth in New England, would measure as 
much wealth there as elsewhere. Wealth would 
not be increased by transporting goods from where 
they are not wanted to where they are wanted. 






rJTf ^''^'^' ^'^ ''"''^^^y ^^^^^^ ^^^ sold, their 
ratio of exchange, or, as it is sometimes called 

their relative value, at any time and place is 

ascertainable only as a deduction from the prices 

at which they are bought and sold at such^'me 

whnl/r' T^ P"^"^' ^^^^^ ^^^ ^^ount at 
wholesale and another at retail. 

The makers of goods, or their first owners do 
not usually deal directly with each othrbut sell 
their surplus products to dealers in them, and 

retailer. A tailor, shoemaker, or other person 
may do custom work or directly supply a local 
or limited demand. But those commodities 
which enter into general consumption, and wS 
are continuously produced for sale, are usually 
supplied to consumers after they have passed 
through the hands of one or mLTeaferHn 
them A dealer in a commodity produces it at 

l.^n.!!r?i, P^^'^ ^^^'^ '' '^ ^^^ted, and 

wanted the most, or assists in the procesL If 

American farmers are ready to sell one or two 

millions of bushels of grain per day, over eight 

millions of bales of cotton within one hundred 

days, as m 1894, millions of livestock, vast 

amounts of tobacco, wool, and other products 



there must be buyers of the stuff to hold, trans- 
port, and sell it to consumers at home and 
abroad. The world's supply of commodities is 
taken off the hands of its producers by the 
traders and finally handed over to the consumer 
from time to time as he may want it, and in 
quantity proportioned to his effectual demand. 

The consumer gains by buying whatever he 
requires when he wants it from those who make 
it their business to supply the consumptive de- 
mand. He lays in no large stock of anything; 
most commodities are bulky, expensive to keep, 
and more or less perishable ; e. g., the daily news- 
paper soon loses its value. A producer of any- 
thing intended to meet a general demand, as cloth 
or hardware, can not afford to retail his product 
to consumers far or near ; to do so would inter- 
fere with his business, involve cost, and loss from 
remnants, rejected and deteriorated goods. Their 
wants are so varied and capricious that the expe- 
rienced dealer can hardly satisfy them. He deals 
with as large a number of customers as possible, 
sets a high price, at retail often double the 
wholesale price, on the newest, best, and most 
desirable things, and as his stock grows old, dete- 
riorates or fails to be in demand, he finally 
endeavors to dispose of it at or below cost to 
those who are anxious for bargains. The cus- 
tomer who wants the best, e. g., eggs new laid, 
fresh butter, fish just caught, the choice qualities 
and cuts of meat, selected fruit, the best quality 






and newest style of goods, must pay a price to 
correspond. Any one who is willing to eat stale 
fish, fruit, vegetables, inferior qualities of meat, 
the tough pieces and shanks of a carcass, use old 
stock and poor qualities of anything, needs no 
public warehouse provided by socialism to sup- 
ply him, for the retailer is always anxious to sell 
his old, decayed, and rejected goods at less than 
cost. What a consumer wants is satisfaction, of 
which he elects to be the judge at the price asked 
for it, and the dealer endeavors to gratify him. 
A woman wants what is in fashion, and what 
will suit her in style, make, color, and price. A 
man also wants what will suit him, e. g., his 
tobacco must be of the right sort. Some one 
might say that tobacco-smoke drawn through a 
cob pipe ought to answer the same purpose as if 
it were drawn through a meerschaum or a Ha- 
vana cigar ; but tobacco, like other things, varies 
in quality, and tastes differ. Prison fare, a striped 
suit of warm clothing, and eight hours of labor 
or less per day may suffice to sustain life and 
health. But happiness resides outside of prison 
walls and any straight jacket invented by some 
schemer to promote the general felicity. In a 
state of slavery or coercion a consumer must 
take whatever his masters and overseers see fit 
to give him ; in a state of freedom the supply 
must conform to the demand. Producers and 
dealers endeavor to supply consumers with what 
they want when it is wanted, and free competi- 


tion reduces the reward for doing so to a mini- 
mum. It is not sufficient for producers to go on 
mechanically " embodying (so-called) utilities in 
material objects"; for if anything is produced 
which is not wanted, or in excess of the demand 
for it, there is no way at present to compel 
people to consume it at or below its cost. 

A market is a place where commodities (one or 
more) are continuously, or at stated times, offered 
for sale and sold. Those who buy and sell at any 
place constitute the market there. A city or 
other locality is a sufficient designation of the 
place to which a market price refers; e. g., the 
prices of various commodities at London, Liver- 
pool, Havre, Hamburg, New York, etc., are pub- 
lished daily in the newspapers, and otherwise. 

If those who deal in one or more things as- 
semble together at one spot, as on some board of 
trade or stock exchange, and there publicly buy 
and sell, any one present and conversant with 
the mode of doing business there can reasonably 
ascertain the prices at which articles are sold 
there; in other cases market prices are ascer- 
tained by inquiry of buyers and sellers, or from 
the reports of sales published daily or oftener, and 
which are more or less correct, depending upon 
the ability and honesty of the reporter. There 
is no such a thing as a perfect market, where 
every commodity is durable, uniform in quality, 
and brings the same price at the same time. The 
relative value of gold and silver continually varies, 



their relative value everywhere being fixed daily 
by the London quotations, which are said to be 
made up in the afternoon as an average of the 
dealings for that day among the bullion dealers. 
If a thing IS sold at auction, and for any cause is 
again put up and resold, it rarely brings the same 
price ; or if a similar thing is offered, it will prob- 
ably sell for less or more than its duplicate. 

The price of a commodity varies with its qual- 
ity ; if the grade is not uniform and the article 
durable, it is usually inspected by the buyer, or is 
bought by sample, it being agreed that the quan. 
tity bought shall conform to the sample. A per- 
son must be familiar with the various kinds and 
grades of a commodity and with the mode of 
dealing in it, in order to act intelligently concern- 
mg It, or even to understand the quotations of its 
market price. 

As specimens of grades and quotations of mar- 
ket price are the following : In the Chicago live- 
stock market there are numerous grades of cattle, 
the poorest selling for about one-third of the best' 
the price of each grade varying with the average 
merits of the particular lot of cattle sold. In wool 
of the sort called " pulled," there are about fifty 
grades, the poorest bringing about one-fifth of 
the best. In the New York and New Orleans 
markets there are twenty-two grades of cotton. 
Coffee may be, or claimed to be. Mocha, Java, Rio,' 
Santos, etc., with various grades of each! At 
London, October 7, 1891, Rio was quiet at 12%q, 



for No. 7, the reported visible supply of coffee 
in Europe and America on October i, 1891, in- 
cluding the amount afloat from Brazil, Java, and 
the East, being 2,576,456 bags, as against 2,214,544 
bags ''in sight" on October i, 1890. 

At New York, March 26, 1895, sugars were 
quoted : Raws, quiet but firm ; Cuba, Muscovado, 
89 test, 2^.; molasses sugars, 89 test, 2^^.\ cen- 
trifugals, 96 test, 3c.; refined, quiet but firm on the 
basis of 3-ff04i^c. for granulated : at Liverpool 
same date, American wheat. No. 2 red winter, 
4s. 8d.; No. 2 spring, 5s. 2j^d.; No. i California, 
5s., with a difference between "spot" and 
"futures"; beef, extra India mess, 70s.; prime 
mess, 60s.; pork, prime mess, 57s. 6d.; medium, 
52s. 6d.; butter, finest United States, 55s.; good, 50s. 

At London, during the season of 1889-90, the 
bank rate for money varied between the extreme 
limits of 3 and 6 per cent; English wheat 
(farmers' deliveries), between 29s. id. and 36s. 6d. 
per quarter ; cotton (mid. Or.), between 5^J^6fJd. 
per lb. During the season of 1890-91 the bank 
rate varied between 2>^@6 per cent; wheat 
(farmers* deliveries), between 31s. and 41s. 4d.; 
cotton (mid. Or.), between 4^ and 54^. Cargoes 
"off the coast" of California wheat, between 
38s. 6d. and 47s.; ditto " shipping and shipped," 
between 37s. and 46s. 6d.; Calcutta No. 2 club, 
between 34s. and 41s. 9d. At Liverpool, during 
1 89 1, bacon (long, short, and clear) varied between 
the extreme limits of 25s. 6d. and 45s. per 112 lbs.; 





Cumberland cut, between 24s. 6d. and 53s.; cured 
salt hams, between 35s. and 56s.; lard, per 100 lbs 
between 29s. 6d. and 36s. 6d. At Chicago No. 2 
spring wheat varied, during 1888, between the 
extreme limits of $1.16^ and 72%q. per bushel • 
durmg 1889, between $1.07 and 7514c.; during 1890' 
between $1.10 and 70c. Early in the summer of 
1 89 1, on report of short crops abroad, the price of 
No. 2 spring wheat at Chicago was advanced from 
about 85c. to about $1.1 6 per bushel. But soon after 
harvest the farmers sold wheat at the rate of one 
and one-half millions of bushels per day, and later 
at the rate of about two millions of bushels per 
day, whereupon the price sagged down to about 
95c. m October and 80c. in April, 1892 ; the price 
of wheat abroad failed to respond to the higher 
prices. In 1888, owing to a short crop of wheat 
m this country, the price of No. 2 red winter at 
New York was advanced from about 84c. to $1 01 
per bushel, but there were good crops elsewhere 
and prices abroad failed to respond. The wheat 
crop of 1894 in this country was much below an 
average, but for want of a foreign demand the 
pnce of No. 2 spring at Chicago went below 50c 
per bushel. The world s harvest of wheat is peri 
petual, being always at hand somewhere in the 
Northern or Southern Hemisphere, the annual 
crop within the reach of statistics being estimated 
at about twenty.five hundred millions of bushels 
as an average, but its price varies as above. On 
September 25, 1891, at Chicago (weather unsea- 

sonably hot), the market report was : " Nearly 
20,000 fresh and 12,000 stale cattle proved too 
much for yesterday's market, which was flat. 
The number was entirely too great, considering 
the glutted condition of the meat channels. 
There were cattle here for which owners refused 
$4 (per 100 lbs.) a week ago, which could not be 
sold for over $3." 

The price of a commodity varies not only with 
its grade or quality and as between different 
buyers and sellers scattered about a market — a 
sharp seller selling for more and a sharp buyer 
buying for less than others— but also when the 
supply is in excess of the demand, or the con- 
trary. If the quantity offered for sale at any 
price exceeds the demand for it at such price, the 
excess of supply must remain unsold unless it is 
crowded upon the market; e. g., a perishable 
article, as fruit ; whereupon competition among 
sellers reduces the price. Or, if the quantity 
demanded at any price exceeds the quantity 
offered at that price, a part of the demand must 
remain unsatisfied, else competition among 
buyers raises the price, a rise in price tending 
to increase the supply and to stint the demand, 
and a fall in price tending to increase the demand 
and to stint the supply. 

There is a present and also a prospective sup- 
ply. There is an amount in the market or on its 
way there, i. e., " in sight," and there is another 
and more uncertain amount still in producers* 



hands, or available in the future. More or less of 
a present supply may be withheld by its owners, 
depending upon their several views as to its pres^ 
ent as compared with its future or market value. 
So, also, the demand varies according to the several 
views of buyers as to the present as compared 
with the future price of a commodity. Com- 
modities are not hurried forward as fast as they 
are produced and crowded on the market, unless 
they are perishable or their market price is very 
attractive ; nor do buyers rush in greedily unless 
their wants are very pressing or the price is 
abnormally low. Every producer or owner of a 
commodity consults his own interest and con- 
venience as to when and where he will dispose of 
It, and every buyer acts in like manner on his 
own behalf. Every seller endeavors to sell at the 
highest price, and every buyer to buy at the 
lowest. The greater part of a year's surplus 
product IS usually marketed during the year. A 
great variety of causes affect market price — the 
durability of an article, the cost of its keep the 
amount -in sight," the amount not in sight' but 
available in the future, comers, strikes, war, a tight 
or easy money market, changes in taxes, tariffs, etc. 
The variation of market price is a source of 
profit and loss. Any one who can foretell the 
price of stocks, grain, cotton, etc., has no need of 
the ring and lamp of Aladdin. Every buyer or 
seller who waits is a speculator, and there are 
also dealers who seek their fortunes in a practical 



study of what is called the law of supply and 
demand, but who, in spite of all the light which 
has been shed upon that subject, continually differ 
in their opinions. The " bull" thinks the price of 
an article is too low, and is a buyer. The honest 
farmer or other producer wants the market well 
stocked with bulls. The " bear " has a contrary 
opinion and is a seller. Consumers regard bears 
with favor. The bulls and bears buy and sell for 
cash and also for future delivery. Sometimes 
one side corners the other, but such events are 
usually local and short-lived. Their operations 
give precision and publicity to market price. By 
their assistance everyone can reasonably ascer- 
tain from the market reports published daily or 
oftener the current price of any staple commodity 
for present or future delivery, and can sell or buy 
"spot" or "futures" at or about the price then 
current. Formerly the farmer wagoned his grain 
to Chicago, finding on arrival the price quite 
indefinite, buyers indifferent, and liable finally to 
be compelled to exchange his product for gro- 
ceries or store goods on some basis fixed by the 
other party, who might perhaps sweeten the bar- 
ter by paying some small sum in cash. Now a 
producer or owner can sell grain ahead by the 
thousand or hundred thousand bushels and de- 
liver it afterward for cash on delivery. 

The price of anything is no exact sum in a 
market unless fixed by law, or the article is a 
monopoly so that its price can be fixed by the 






seller, or is sold at auction, in which case each 
parcel sold has a price of its own. The one-price 
store always has a bargain counter, and the one 
price is not immutable. As above cited, on March 
5, 1895, at New York, ''refined sugar was quiet 
but firm on the basis of sfjc. to 4i^c. for granu- 
lated." The difference between these two prices 
on 100 tons would be $1,125. Tables of market 
prices which purport to give the prices per day, 
month, or year, of commodities, more or less vari- 
able in quality, are evidently made up on some 
system of averages. But in the market nobody 
buys or sells at any average price. Where trans- 
actions are large there is a material gain or loss 
at some of the prices from which the average is 
made up. A miller who makes 10,000 barrels of 
flour per day, may buy i ,000,000 bushels of wheat 
at one time; the difference of a cent a bushel 
makes a difference of $10,000 in the price paid. 
A cent a bushel makes a difference in the price 
of an average crop of wheat in this country of 
about $5,000,000. Its price often varies from i to 
5 cents a bushel in a day, and during a year may 
vary 30 or 40 cents a bushel as between the 
highest and lowest price. 

Cost and Market Value, Since the price of a 
commodity varies with the supply relative to the 
demand for it, and the cost of its production 
affects the former and the cost of its acquisition 
the latter, these two causes constantly tend to 
keep its price within certain extreme limits. 

There is a minimum below which the market 
price of anything can not continue without finally 
cutting off its supply. Those who produce it at a 
loss must quit when they have exhausted their 
capital and credit, and those who can do better at 
something else will quit voluntarily, for in such 
case the market price of the article is below its 
cost of production to each of them. But before its 
production finally ceases, unless the article is 
superseded by something better or more desira- 
ble, goes out of fashion, or for some cause is not 
wanted, its supply finally becomes inadequate to 
the demand, and its price rises. As its price rises 
the reward for its production increases, which 
stimulates its producers to increased activity, and 
induces others who can do so to aid in increasing 
its supply, unless there is a general rise in prices 
consequent upon an inflation of the currency, or 
other cause. But there is also a limit to the price 
of any product as compared with other things; 
for as its price increases, its consumption cost also 
increases, which stints the demand more and more 
until such demand must finally become nominal. 
But before reaching that point the supply becomes 
in excess of the demand for it, and its price 
declines until finally the supply again becomes 
inadequate from a decrease in its amount and an 
increase in the demand for it. 

An effectual demand consists of a want coupled 
with a disposition and ability to gratify it. There 
is a limit to the quantity wanted of anything. 





although it can be had for nothing. A person 
drinks water until his thirst is quenched and then 
stops ; he wants no deluge for any purpose. If a 
thing must be bought, the cost of its acquisition 
narrows up the extent of the demand for it. Such 
cost to everyone is the production cost to him of 
what he gives in exchange for the thing bought. 
No one can continue to buy more than his revenue 
will purchase, and however he may distribute it in 
gratifying his various wants, there is a limit to his 
eflfectual demand for every commodity, the aggre- 
gate of which several demands constitute the total 
demand for it. As the price of anything rises, 
the ordinary consumer uses the article less freely; 
he economizes, or buys other relatively less costly 
and more desirable things. If pressed he will use 
inferior qualities of the same commodity; one 
kind of food, drink, or clothing instead of another. 
During the Irish famine, Indian corn was used as 
a substitute for potatoes ; other textiles were used 
abroad in lieu of cotton during the late Civil War. 
Great loss was suffered at Chicago in a corner on 
pork because the consumptive demand refused to 
respond to the high price set on the article by 
those who engrossed the whole supply until it 
became too heavy for them to carry. Such also 
was the result of an attempt made a few years 
ago to engross the entire world's supply of copper. 
Commodities are produced in such variety that no 
one is ordinarily compelled to buy any one of 
them. There is other meat besides pork, and 

other metals besides copper. A person can wear 
woolen, linen, or cotton goods ; drink beer instead 
of whisky ; tea, cocoa, or chicory instead of coffee ; 
eat Indian corn, rye, oats, etc., instead of wheat,' 
and wheat instead of com or potatoes when 
bakers' flour is $2 and patent flour $3.20 per bar- 
rel, wheat (No. 2 spring) 54 cents, corn 57 cents, 
and potatoes 70 cents per bushel, as they were at 
Chicago in September, 1894. 

While the extent of the demand for a thing is 
affected by its cost to the consumer, and also by 
the cost of its substitutes, yet the demand for it 
is greatly aided by an established taste for it. 
Many will continue to -consume corn or potatoes, 
although wheat is cheaper. A preference abroad 
for other grain, in fact less nutritious, materially 
limits the foreign demand for Indian corn. When 
the tax on distilled spirits raised the price of 
whisky from 15 cents a gallon to $1.15 or more, 
the quantity wanted was not reduced propor- 
tionally ; so also as to beer and tobacco. On the 
other hand the stress of a want, as compared 
with other wants, varies from a desire for vari- 
ety, or a change of fashion, custom, and habits. 
Boots and stovepipe hats are little worn ; snuff 
has almost gone out of use ; broad-toed shoes are 
not wanted. 

Free competition in the production and sale of 
commodities is the only method of fixing their 
price in which all parties can concur. Either the 
producer or consumer will object to any price 



fixed by law, and to all combinations entered into 
in order to raise or lower the price of anything 
or to monopolize its production. It is proper by 
law to punish and prevent the sale of unwhole- 
some commodities, adulteration, fraud, deceit, and 
all boycotts and other combinations to oppress 
anyone m the exercise of his just and lawful 
rights, leaving him free to decide what, if any- 
thing, he will produce for sale, when, where, and 
at what price he will sell his product — those 
covered by patent, copyright, trademark, or other 
legitimate monopoly excepted — and also free to 
buy anything which may be lawfully offered for 
sale, when, where, and at any price which he 
may see fit to give for it. Every person engaged 
m an occupation might desire to have his product 
or business a monopoly, but if the price of every- 
thing could be doubled their relative value would 
remain the same. Therefore, every trade union 
trust, pool, syndicate, etc., ought to insist that in 
every business, except their own, there should 
be no monopoly whatever. 

Under ancient class legislation a baker in Lon- 
don was convicted by a jury of consumers and 
pilloried because he bought two quarters (i6 bu ) 
of wheat, then exposed for sale in the common 
market on the pavement within Newgate, at 1 5 >^d 
per bushel, being 2>^d. over the common selling 
price at that time in that market, "to the great 
loss and deceit of the common people and to the 
increase of the dearness of corn." Now the wheat 



might have been of superior quality, or of a dry sort 
which would absorb more water in the dough, or 
take less alum in order to make the regulation 
loaf. Formerly famines were frequent in Eng- 
land, there being fifty-seven in that country dur- 
ing the eleventh century, according to Mulhall. 

It being reported, during the winter of 1894-5, 
that two pounds of bread were sold in New York 
for 5 cents, it was proposed to compel the Chi- 
cago bakers to do the same. The city having no 
authority to fix prices, some Solon introduced 
a bill m the Legislature for the desired purpose. 
At that time everyone could, if he chose to do so 
bake his own bread, and perhaps also bake bread 
for sale, and sell two pounds or more for 5 cents 
unless he feared injury as a "scab" from some 
bakers' union. 

In 1670 a bill was passed by one branch of the 
General Court of Massachusetts, but not con- 
curred in by the other, reciting : " This court 
considering the great difficulty and discourage- 
ment that at present lies pressing upon many 
inhabitants of this jurisdiction, especially upon 
such whose callings are in husbandry, not only 
by reason of the afflicting hand of God upon them 
several years in blasting their principal grain, and 
abating their increase in other corn, and slowness 
of market, and exceeding low price for what the 
husbandman can raise — unto whose afflicting 
hand all ought to submit and humble themselves 
and yet with the prophet confess, * Thou, Lord' 




hath afflicted us less than we deserve,'— but also 
difficulty and discouragement are yet heaped and 
increasing upon them and others by reason of the 
excessive dearness of labor by artificers, laborers, 
and servants, contrary to reason and equity, to 
the great prejudice of many householders and 
their families, and tending to their utter ruin and 
undoing — and the' produce thereof is by many 
spent to maintain such bravery in apparel which 
is altogether unbecoming their place and rank, 
and in idleness of life, and a great part spent 
viciously in taverns and alehouses, and other 
sinful practices, much to the dishonor of God, 
scandal of religion, and great offense and grief to 
sober and godly people amongst us, all of which 
timely to prevent, etc.," thereupon proceeding to 
fix wages, payable in corn at the price from year 
to year set by the General Court, and providing 
penalties for the breach of its provisions. The 
modem Pecksniff entertains quite opposite views, 
and favors an '* afflicting hand " manifested in 
the form of boycott, intimidation, force, and 
violence done to scabs, employers, and their 

Every person, who is free to do so, in order to 
obtain a livelihood or a profit, selects from those 
occupations which are open to his choice, the one 
which appears to him to offer the best reward for 
the same cost to him. All employments are kept 
filled by each one of the rising generation and 
others in search of a livelihood or profit, amount- 



mg m this country to a million or more annually 
exercismg his power of choice, and adopting with 
or without the assistance of friends, the occupa- 
tion which appears to be best suited to his means 
capacity, inclination, and previous training' 
What reward will be deemed adequate in any occu- 
pation which is or seems to be arduous, hazardous 
unwholesome, discreditable, dirty, or otherwise 
unattractive, or the contrary, every person 
decides for himself. Cost and its reward no one 
can measure and compare except the person who 
undergoes the one and enjoys the other. For 
example, no one can estimate the sacrifice made 
by a smith in shoeing a horse except himself It 
probably costs one smith more than another to 
shoe the same horse equally well, and the price 
paid for the job may afford him less satisfaction 
But if both smiths continued to shoe horses, the 
fair inference would be that each of them con- 
sidered his reward to be worth its cost to him 
and to be at least equal to any reward which he 
could otherwise obtain at the same cost to him 
Some fail to find any industrial pursuit which 
offers to them a sufficiently attractive reward 
Darwin, during his vojrage round the world, asked 
two beggars in Chili why they did not work? 
One gravely answered that the days were too 
long, and the other said he was too poor. 

Among the great variety of employments 
there are places suited to every degree of 
capacity ; and everyone is rewarded according to 



his ability and good fortune. Every common 
sailor is not competent to command the ship, 
nor every common soldier to command the army, 
nor every railroad employe to be its manager, 
nor every wage laborer to take the place of his 
employer. With equal opportunities unequal 
men achieve unequal success. Some fail from ill 
health or other misfortune, but more fail from 
incapacity, ignorance, indolence, extravagance, 
drunkenness, dishonesty, and bad habits. In the 
same employment one person is much sought 
after by customers, employers, and clients, while 
another gains only a meager subsistence or fails 
entirely. The diligent, skillful, able, and honest 
man is always busy, while others are out of a job 
and apply for work to him, for which they 
demand high wages, whether they are indolent, 
unskillful, dishonest, drunk, or sober. In one 
case a journeyman tailor employed to make up a 
coat, in order to finish his job easier and sooner, 
cut off part of the pattern and spoilt the coat. Such 
a tailor fails even as a journeyman. Employers 
are not an hereditary race ; the most successful 
men usually start poor and rise to position and 
affluence by their own merits and against all 
obstacles. The rich Carnegie says his father was 
a poor Scotch weaver, and his wealth was not due 
solely either to good luck or oatmeal. The 
master workman of the Knights of Labor 
was paid $5,000 per annum for his services, 
while the Sir Knights, who voluntarily footed 



all the bills, received for their labor $2, more 
or less, per day. 

The office of President was held successively 
by a rail-splitter and a tailor, while the Union 
hosts were led to victory by the son of a tanner. 
Others led their armies to defeat. 

Under free competition every competitor 
endeavors to adopt the occupation, lying within 
his power of choice, which will afford him, on a 
reasonable average and according to his standards 
and opinion in the matter, the best reward at the 
same cost to him. And supposing every compet- 
itor to have accomplished his purpose, then no one 
would have any motive to change his occupation, 
and the relative value of commodities would be in 
equilibrium. But even if nobody died and there 
was no rising generation or other newcomers, 
yet if the production or consumption of commod- 
ities varied relatively, the equilibrium would be at 
an end ; the supply of some things would be in 
excess and of others deficient, and a redistribu- 
tion of industry would be required. But one gen- 
eration is continually dying out and another suc- 
ceeding having different capacities, tastes, and 
desires, too many of whom adopt some pursuits 
and too few others, while many of those who 
have already made their choice fail of success in 
it or become dissatisfied with their lot and 
endeavor to better themselves by a change. Very 
few people consider themselves adequately 
rewarded for their merits and sacrifices. Also 




new industries arise — e. g., electric appliances — 
new wants and new means to satisfy them ; new 
uses are found for things, e. g., cotton seed, rock 
oil, coal tar, gas, animal fat, etc.; and new modes 
of conducting old industries by improved methods 
and machinery. 



Free competition implies the right of every 
competitor to estimate and compare cost and its 
reward for himself; and, therefore, if everyone 
of them were, in his opinion, as well rewarded in 
his occupation as he would be in any other within 
his power of choice, competition would have spent 
its force, and the relative value of commodities 
would be in equilibrium, although the cost of each 
of them to each of its producers was not the same. 
But the relative value of commodities has been 
called natural, or normal, when they exchange for 
each other on the basis of equivalents in cost, 
i. e., when the cost of their acquisition is equal to 
the cost of their production. In order to present 
natural value in a definite form, suppose — 

c=a unit of cost, 

x.c=cost per unit of commodity *' a," 







and that m units of "a" cost each of its producers 
the same to produce them as n units of " b " cost 



each of its producers, then, at their so-called 
natural or normal value. 

m.x.c=n.y.c, or ^=^, (i) 

it being asserted that under free competition - 
regulates and determines ^ ; it being also assumed, 
contrary to the facts, that every commodity is 
uniform in quality, and that all men are exactly 

If m units of " a " and n units of " b " have the 
same market value, what is c or a unit of cost 
whereby it may be known whether or not their 
cost is the same ? According to great authority, 
a unit of cost consists of *' a quantity of labor," it 
being said (Ricardo, Chap, i, Sec. i) "that this is 
really the foundation of the exchangeable value 
of all things excepting those which can not be 
increased by human industry is a doctrine of the 
utmost importance in political economy." The 
doctrine of natural value being of that importance, 
whatever c may represent, in Eq. (i), the subject 
deserves careful examination, beginning with 
Adam Smith. 


Adam Smith said (B. i, Chap, 6): "In that 
early and rude state of society, which precedes 
the accumulation of stock and the appropriation of 
land, the quantities of labor necessary for acquir- 
ing different objects seems to be the only circum- 
stance which can afford any rule for exchanging 



them for one another. If among a nation of hunt- 
ers, for example, it usually cost twice the labor to 
kill a beaver which it cost to kill a deer, one beaver 
would naturally exchange for or be worth two 
deer. It is natural that what is the produce of 
two days' or two hours' labor should be worth 
double of what is usually the produce of one 
day's or one hour's labor." 

Here cost consists of labor, and is measured by 
a unit of labor time, viz. , a day's or an hour's labor, 
which is supposed to be the same sacrifice to 
every hunter, and to procure the same amount of 
deer or beaver, whether one hunter undergoes 
the labor or another. 

But if it cost a hunter twice the labor to kill a 
beaver as it cost him to kill a deer, what motive 
would induce him to kill deer for the purpose of 
exchanging them for beaver? He would not 
undergo the cost of killing two deer and the 
additional cost of making the exchange, and take 
the chances of doing so, when he could kill a 
beaver at the same cost as to kill two deer. No 
person, savage or civilized, will produce, or con- 
tinue to produce, anything for sale or exchange 
unless he can save in cost by the exchange. 
Adam Smith says (B. i, Chap. 2): " In a tribe of 
hunters or shepherds a particular person makes 
bows and arrows, for example, with more readi- 
ness and dexterity than any other. He fre- 
quently exchanges them for cattle or for venison 
with his companions, and finds at last that he can 



in this manner get more cattle and venison than 
if he went to the field to catch them." To this it 
may be added that his companions gave cattle 
and venison for bows and arrows because they 
thereby obtained the latter at a less cost to 
them than if they made them for themselves. 
Everybody could not, nor can, make an arrow or 
spearhead out of a piece of brittle flint, nor other 
stone implements, many of which, and wampun, 
also, were made with such art that they excite 
wonder how the work was done with wooden or 
stone implements. It may be safely asserted, 
therefore, under color of great authority, that 
cattle and venison were exchanged for bows and 
arrows, and deer for beaver, because each party 
saved in cost to him by the exchange, to which 
may be added that he also gained in value; 
for if the bows and arrows were of greater 
value to their maker than the cattle or ven- 
ison offered for them, he would refuse to make 
the exchange. 

Suppose it cost A as much to produce a unit of 
commodity **c" as m units of commodity "d," and 
B as much as n units of commodity *'d"; it is 
required to know the conditions on which each 
may save cost by an exchange. 

If B gave A n units of "d" for (i+x) units of 
"c," B would save the cost to him of producing 
the X units; and the (i+x) units of "c" would 
cost A the same as m (i+x) units of "d." There- 
fore each would save in cost as follows : 




A, the cost to him of producing n— m 
(i+x) units of "d," or ^ - (i+x) units of "c." 

B, the cost to him of producing n.x units 
of "d" or X units of **c." 

And the conditions are : 


H>i+x (3) 

which hold good, positively, if n>m, or if the 
relative cost of producing *»d" as compared with 
"c" is less to B than to A, although "c" costs A 
more to produce it per unit than it does B. For ex- 
ample, suppose m=2 : n=4 : x= >^, then each party 
would save the cost to him of producing one-half 
a unit of "c." 

Suppose there is competition in the production 
of the two commodities. If A gave B (i+x) units 
of "c" for n units of "d," then one unit of "c" 
^^ys TTi ^nits of "d." But if E offered ( i -f-x+h) 
units of "c" for the n units of "d," B would deal 
with him unless A would do the same. If E, 
or some other competitor of A, made i+x+hJt^ 
the exchange value of **c" would be below its cost 
of production to A, for he would save cost by pro- 
ducing "d." Suppose now that F, competing with 
B, offered (n+k) units of "d" for (i+x-f h) units 
of "c," then B must do the same or be undersold. 
^ !f ^.^^^ accept of a very small saving per unit of 
"d" in order to make a large saving by selling a 
large quantity of -d." Finally, if F, or some 




other competitor of B, made k large enough, 
the result of the competition might be 

i + x + h I + X* (4) 

In which case both A and B would save 
as much by an exchange of their products as 
they did at first, which would justify the old 
saying that it is well for the cobbler to stick to 
his last. 

If a person wants n, which exchanges in the 
market for m, and he produces m and exchanges 
it for n, it costs him the same as m, with the cost 
of making the exchange added. He may not be 
able to produce n at all, or only at great cost, 
while another or others can do so at a small cost 
to them. Every one usually acquires any home or 
foreign product by way of exchange at much less 
than it would cost him to produce it. If this were 
not so, there would be no motive to induce a per- 
son to procure m for the purpose of exchanging 
it for n, or of procuring n for the purpose of 
exchanging it for m. 

Cost of Production, among a nation of hunters, 
would not be the only circumstance affecting the 
exchange value of their products. If it cost twice 
as much to kill a beaver as to kill a deer, the 
question would still remain, how much of each 
was wanted? If beaver were produced in excess 
of the demand, one of them would not exchange 
for two deer. This would reduce the supply of 
beaver. Hence, relative demand is a regulator of 
relative value. 



I ^ 

Although it may be true that in the same occu- 
pation and to the same person, usually or on an 
average, two days' or two hours' labor would be 
double the cost or sacrifice of one, yet, since men 
are not exact duplicates of each other, labor in 
the same occupation for the same period of time 
will not usually, or on an average, amount to the 
same sacrifice, or produce the same amount in 
quantity or value. It is quite obvious that an 
alert, active hunter, swift of foot, with keen sight 
and hearing, would usually kill more deer or 
beaver in the same time than a dull, sluggish 
hunter, slow of foot, dim or short-sighted and 
hard of hearing ; also, the former would probably 
enjoy the hunt and thereby lay down a less quan- 
tity of ease, liberty, and happiness than the other. 
Also, men being unlike, some of the hunters 
would prefer to kill or trap beaver than to scour 
the country after deer. Whereupon, if one hunter 
could kill (2+p) deer at the same cost to him as 
to kill one beaver, and another hunter could cap- 
ture (i+q) beaver at the same cost to him as to 
kill two deer, each of them would save cost by an 
exchange of two deer for one beaver. At that 
ratio of exchange, every hunter who could, or 
thought he could, kill two deer at less cost to him 
than one beaver, would kill deer, and every hunter 
who could, or thought he could, kill a beaver at 
less cost to him than to kill two deer, would kill 
beaver. In a state of freedom, every person will 
adopt the occupation lying within his power of 



choice which will, in his opinion, afford him the 
best reward at the same cost to him, and will 
measure cost and its reward for himself. There- 
fore, if among a nation of hunters deer and beaver 
were killed for the purpose of exchange, their 
relative value would tend to become such that 
every hunter of deer would acquire beaver, and 
every hunter of beaver would acquire deer, at less 
cost to him by way of exchange than to procure 
them directly for himself ; for otherwise, a hunter 
would alter his vocation, which he would have 
reason to do if too many hunted deer or beaver, 
or either of the animals became more or less dif- 
ficult to capture, or varied in quality, or the rel- 
ative demand for them varied. 

The quantities p and q would be different to 
the hunters because of their inequality, natural 
and acquired. Whatever the ratio of exchange 
might be, the best or most efficient hunters would 
have more product to consume and exchange than 
their inferiors. No one of them would receive 
or be entitled to an average reward unless he 
were an average hunter ; for, according to the 
author cited, in the original state of things exist- 
ing before the advent of the landlord and cap- 
italist, the whole produce of labor belongs to the 
laborer as the natural recompense or wages of his 
labor. But these natural wages, being contingent 
on the result of the labor, may be very small. 
For Adam Smith says : '' Among the savage 
nations of hunters and fishers, every individual, 



who is able to work, is more or less employed in 
useful labor, and endeavors to provide, as well as 
he can, the necessaries and conveniences of life 
for himself or for such of his family or tribe as 
are either too old or too young or too infirm to 
go a hunting or fishing. Such nations, however, 
are so miserably poor that, from mere want! 
they are frequently reduced, or at least think 
themselves reduced, to the necessity, sometimes, 
of directly destroying, and sometimes of abandon' 
ing, their infants, their old people, and those 
afflicted with lingering diseases, to perish with 
hunger, or to be devoured by wild beasts." If, 
as it is asserted, manual or physical labor pro^ 
duces all the wealth, it seems strange that a 
laborer who works for hire should make a better 
living now, when the landlord and capitalist are 
said to share with him, than he did when he 
directed his own labor and shared with nobody. In 
fact, the socialist strives to convince him that he 
will always live in the midst of abundance, with 
very little labor, when the State is his landlord and 
a swarm of officials and overseers are his masters. 
In the deer and beaver case, cost of production 
consists of labor and is measured by a unit of 
labor time, e. g. an hour's or a day's labor, which 
is there supposed to cost everyone the same 
amount of his ease, liberty, and happiness, and to 
produce in every case the same amount in quan- 
tity or value, all the deer and also the beaver 
bemg assumed to be of a uniform size and quality. 



But after stating that case, Adam Smith adds : 
"If the one species of labor should be more 
severe than the other, some allowance will 
naturally be made for this superior hardship, and 
the produce of one hour's labor in one way may 
frequently exchange for that of two hours* 
labor in the other. Or, if one species of labor 
requires an uncommon degree of dexterity 
or ingenuity, the esteem which other men 
have for such talents will naturally give a value 
to their produce superior to what would be due to 
the time employed about it. Such talents can 
seldom be acquired, but in consequence of long 
application, and the superior value of their pro- 
duce, may frequently be no more than a reasonable 
compensation for the time and labor which must 
be spent in acquiring them. In the advanced state 
of society, allowances of this kind for superior 
hardship and superior skill are commonly made 
in the wages of labor ; and something of the same 
kind must probably have taken place in its ear- 
liest and rudest period." 

In this statement it is assumed that the same 
species of labor is of equal hardship to everybody. 
But this is not true. Among a nation of hunters, 
one would enjoy the chase, and consider the cap- 
ture of beaver as very dull and irksome ; another 
would be of a contrary opinion. In the later 
stages of society some prefer to be a soldier or a 
sailor than to follow some other occupation for the 
same reward, while others do not. 



Nor is it true that every person will acquire the 
same skill in an occupation by the same experi- 
ence ; for example, in weaving, one operator will 
attend on more looms than another who has had 
the same practice, and do it better than the other. 
In " The Effects of Machinery on Wages," by J. S. 
Nicholson, Chap. 3, it is stated on the authority 
of one who knew the facts : " I have known lads 
to learn the use of the stocking frame and to be 
able to compete with men in six or eight weeks, 
and I have known men who have worked at the 
trade for years and can scarcely make a living. I 
know a^ this time a case of four men working in 
one room, and one of the four does as much work 
as the other three, and earns and receives as much 
money as the other three." 

The esteem which hunters would have for 
superior skill, dexterity, and ingenuity would be 
indicated by giving more for two deer or beaver 
than for one, or more for a well-made bow or 
arrow than for an inferior one. Labor of itself 
has no value, except to keep the body and mind 
employed and in a healthy condition. As a means 
of production its value is derived from its product. 
If that is worthless so is the labor expended upon 
it. Labor, like a tree, and some other things, is 
known and estimated by its fruits. 


It is obvious from Eq. (i) that the relative cost 
of commodities "a" and "b,"per unit, depends 



on the absolute cost of each of them. Therefore, 
supposing " c " or a unit of cost to be a unit quan- 
tity of labor, such unit must be a definite amount, 
or the theory of natural value based on "quan- 
tities of labor" becomes weak in the knees. But 
its chief exponent says (Ricardo, Chap, i. Sec. 2): 
" In speaking, however, of labor as the foundation 
of all value, and the relative quantity of labor as 
almost exclusively determining the relative value 
of commodities, I must not be supposed to be 
inattentive to the different qualities of labor, and 
the dijfficulty of comparing one hour's or one day's 
labor in one employment with the same duration 
of labor in another. The estimation in which 
different qualities of labor are held comes soon 
to be adjusted in the market with sufficient pre- 
cision for all practical purposes, and depends 
much upon the comparative skill of the laborer 
and intensity of the labor performed. The scale, 
when once formed, is liable to little variation. If 
a day's labor by a working jeweler be more valu- 
able than a day's labor by a common laborer, it 
has long ago become adjusted, and placed in its 
proper position in the scale of value." 

According to this statement, the position of 
labor in the scale of "quantity" is fixed by its 
position in the scale of " value," i. e. ^, or relative 
value, measures ^, or relative cost, instead of the 
contrary. If a day's labor by a working jeweler, 
or its product, is esteemed in the market to be 
more valuable than a day's labor by a common 



laborer, then the quantity of labor done and 
suffered by the former, per unit of labor time, is 
proportionally greater than the labor done and 
suffered by the latter. The wages of a diamond 
cutter in Amsterdam being $5 per day, and of 
a common laborer there 25 cents, then, as ad- 
justed in that market, the comparative quan- 
tity of their labor, per day, is as 20 to i. 
And in the same occupation, e. g. jewelry, with the 
same materials and implements, one jeweler will 
produce more in quantity or quality than another 
in the same period of labor time. So also in 
other occupations, including that of common labor. 
Nor is the difference immaterial either for prac- 
tical purposes, or to the theory of natural value. 
As a matter of fact, two farmers will make butter 
from the same quality of milk, and the product of 
one of them will be esteemed in the market at 
twice the value of the product of the other ; there- 
fore, as thus adjusted, the quantity of labor done 
and suffered by the former is double that of the 
latter. In the opinion of consumers, the sweat 
and sacrifice of the former, as embodied in his 
product, exhales a perfume and has an agreeable 
and wholesome taste, while the sweat and sacrifice 
of the latter taints his product with soap-grease 

According to Howell (" Conflicts of Labor and 
Capital," Chap. 4), in 1877 the weekly wages of 
engineers in England varied from 25s. to 45s.; of 
iron founders, in the same locality, from 24s. to 



45s. He also says (lb.) that a trade or labor union 
only endeavors to fix a minimum wage, below 
which none in that employment shall work, or at 
least those who are members of the union. Any 
uniformity in wages arises from the effort of 
employers to make this minimum wage the max- 
imum in all cases, and also by sifting out the 
drones. Also a labor union may endeavor to pre- 
vent the careful, diligent, and efficient workman 
from " besting " his inferiors, but not with entire 

According to Carroll D. Wright (Evolution of 
Wage Statistics — Quar. Jour, of Economics for 
January, 1892), in iron works, a crew of nine men 
all receive different wages, by voluntary agree- 
ment ; the weekly wages of women in jewelry at 
Attleboro, Mass., in 1872, varied from $4.50 to $13 ; 
wages of workingmen in Massachusetts, in 1875, 
varied from $300 to $1,800 per annum; in 1884, 
the weekly wages of working girls in Boston, 
Mass., varied from $1 to $35 ; in 1885, the weekly 
wages of operatives in cotton goods varied from 
$5 to $20 and over. 

A person, instead of working for hire or wages, 
may work for himself or profits. But there is no 
uniformity in profits, even in the same pursuit ; 
for otherwise all would succeed and nobody fail 
in business, except from some natural and inevi- 
table accident. There are about ten thousand 
insolvencies per annum in the United States, in 
prosperous times, with a still greater number of 





cases where persons retire from business after the 
loss of the whole or a large part of their capital, 
before becoming insolvent. Young men and 
others, with capital or credit, are continually 
engaging in some business without having the 
personal elements necessary to success in it, and 
are continually failing because consumers will 
not reimburse them the cost to them of their 
contribution to the supply of their commodity. 
It is notorious that in the same locality and in the 
same occupation, one company, firm, or person 
does better than another, the difference being due 
to him or those who conduct the business. Mrs. 
Micawber said that the coal business on the Trent 
required talent and capital, and that Mr. Micawber 
was excluded from the business for want of the 
latter. Nobody would furnish it. If the govern- 
ment had done so, without interest, and prohibited 
anybody from underselling him, he might have 
succeeded. The Barings failed for want of talent. 
One popular scheme of social reform proposes to 
put all the young men at common labor for five 
years ; all the voting, ruling, and managing to be 
done by the graybeards, who have cut their eye- 
teeth and retired from all labor, except headwork, 
on a pension. The young women to be employed 
as assistant teachers of political economy, and to 
entertain ** sleepers " by taking them shopping, and 
with music and sermons furnished by telephone. 
Adam Smith said (Chap. 5) that labor is the 
real measure of the exchange value of all com- 

modities, i. e., that | determines ^, Eq. (i). But 
he says it is difficult to ascertain the proportion 
between the different qualities of labor. The 
time spent in two different sorts of work will not 
always determine this proportion. The different 
degrees of hardship endured and of ingenuity 
exercised must likewise be taken into account, 
and it is not easy to find any accurate measure 
of either. It is adjusted, however, he says, not 
by any accurate measure, but by the higgling and 
bargaining of the market. Therefore, according 
to him also, ^, as fixed in the market, measures 
-. But the ratio ^ continually varies ; the quality 

y m 

of the goods varies ; and for the same quality ^ 
is not the same, even at the same time, to all buy- 
ers and sellers. If they are equal in all other 
respects one proves to be a better higgler than 
another ; but, as a matter of fact, some of them, 
with equal facilities, produce n or m at less cost 
than the others. 

He also says (lb.), in substance, that wealth 
consists of means of satisfaction; that a man's 
labor will not directly supply him with all of 
these ; that in order to obtain them in kind, quan- 
tity, and quality suited to his wants, his wealth 
must have purchasing power ; having this power 
it gives its owner a certain command over all the 
labor and all the produce of labor which is in the 
market ; and a man's fortune is, therefore, in pro- 
portion to the extent of this power, or to the 



quantity of other men's labor, or, what is the same 
thing, of the produce of other men's labor^ 
which it enables him to purchase or command. 
Thus he makes the quantity of "other men's 
labor" to be in proportion to its purchasing 
power, or to that of its product; e. g., if a week's 
labor by two engineers in England, in 1877, ^ad, 
respectively, the purchasing power of 25s. and 
45s., then the quantities of their labor, per unit 
of labor time, was in the proportion of 25 to 45. 


Ricardo considered that the doctrine illustrated 
by the deer and beaver case applied in the later 
as well as in the early stages of society, and said 
that the quantity of labor bestowed on commodi- 
ties, whose production is open to competition, 
regulates their relative or exchangeable value. 
In order to harmonize this doctrine with the use 
of capital as an aid to labor, he said (Chap, i , Sec. 
3): "Even in that early state to which Adam 
Smith refers, some capital, though possibly made 
and accumulated by the hunter himself, would be 
necessary to enable him to kill his game. With- 
out some weapon, neither the deer nor the beaver 
could be destroyed, and, therefore, the value of 
the animals would be regulated, not solely by the 
time and labor necessary to their destruction, but 
also by the time and labor necessary for provid- 
ing the hunter's capital, the weapon, by the aid 
of which their destruction was eflFected." 



Since the hunter could not kill deer and beaver 
without a weapon, he must, theretofore, have ac- 
quired a surplus ; for in order to make the weapon 
its maker must have materials, tools, and subsist- 
ence during the time of its manufacture. This 
surplus would not be due merely to the exercise 
of greater industry than was necessary to support 
him, but also to the exercise of frugality or absti- 
nence from consuming or squandering what this 
greater industry produced. Frugality or abstinence 
being essential to the existence of capital, is an ele- 
ment to be considered. Having capital the hunter 
became enabled to procure a weapon and kill 
deer and beaver, a thing which was impossible 
for him to do without it. Competition in killing 
them would be limited to those who possessed 
the necessary capital ; those who failed to acquire 
it would be compelled to subsist as they did 

Also a right of property must have then 
existed. And the hunter, being the owner of his 
weapon, would be entitled to all the benefit he 
could derive from it, either by using it himself or 
by demanding a profit for its use by others. 

But assuming all men to be exactly alike, each 
of them would acquire an equal capital in an 
equal period of labor time ; whereupon the author 
cited says (lb.) : " Suppose that in the early 
stages of society the bows and arrows of the 
hunter were of equal value and of equal durability 
with the canoes and implements of the fisher- 






man, both being the produce of the same quantity 
of labor. Under such circumstances, the value of 
the deer, the produce of the hunter's day's labor, 
would be exactly equal to the value of the fish, 
the produce of the fisherman's day's labor. The 
comparative value of fish and game would be 
entirely regulated by the quantity of labor real- 
ized in each." 

It is not said that the relative value of the two 
products would be adjusted in the market with 
sufiicient precision for all practical purposes, nor 
that their relative value would be adjusted, not by 
any accurate measure, but by the higgling and bar- 
gaining of the market ; but it is asserted that the 
value of the two products would be "exactly 
equal." It was necessary to be exact, for a small 
difference in cost or value per unit of product 
during a lifetime, or for a shorter period in produc- 
tion on a large scale, would make a great difference 
in the total result. A difference of a fraction of 
a cent per yard in the cost of making cotton cloth, 
or in the price obtained for it, makes the dif- 
ference between success and failure in the busi- 
ness, and this difference might be solely due to 
one of its producers being a better higgler than 
the other. Each of them is a buyer of materials, 
etc., and a seller of products on a large scale. 

The statement that the relative value of the 
two products would be entirely regulated by the 
quantity of labor realized in them is not true. 
Suppose it cost the same to kill a deer as to catch 


x fish ; this would not determine how many of 
each was wanted at that ratio. The deer might 
be large and fat, the fish small and poor, or vice 
versa. The quantity required of each at that 
ratio would depend upon their relative use value. 
If the relative demand for them at that ratio was 
for n times as many fish as deer, evidently n is 
unknown. If there were too many fishermen, 
the supply of fish would be in excess of the 
demand for them. Some fishermen therefore must 
become hunters ; but to do so, a fisherman must 
abandon his skill and implements, and acquire 
those of a hunter. Bows and arrows being in 
demand, and canoes, etc., not, the implements of 
the hunter and fisherman would not then be of 
equal value. Relative demand is a regulator of 
relative value. 

This may be shown by a formula : 

If the product of each hunter's day's labor was 
p deer, then x.p fish would be the product of 
each fisherman's day's labor. Assume p= i. 
a = total number of producers, 
y= total number of hunters, 

^= total number of fishermen, 
y + ^=a.\ ^=number of hunters, (5) 

a.n . 
n + x' 

number of fishermen. 

All of the hunters and fishermen being exactly 
alike, all of them would want the same ration. 

Suppose x=2, obviously n still remains un- 
known, and may be set at any figure. For n=3 : 40 





per cent would be hunters and 60 per cent fisher- 
man. Total relative demand, 40 deer to 120 fish. 
Each ration would be 0.4 deer to 1.2 fish. There 
would be 24 surplus deer to be exchanged for 48 
surplus fish, per hundred of producers. 

For n=>i : 80 per cent would be hunters, and 
20 per cent fisherman ; total relative demand, 80 
deer to 40 fish. Each ration would be 0.8 deer to 
0.4 fish, leaving 16 surplus deer to be exchanged 
for 32 surplus fish. 

But men are not all exactly alike ; therefore, 
with the same implements the best hunter would 
usually kill more game per day than the poorest 
hunter, and the product of each of them would 
not be " exactly equal " to that of the same fisher- 
man. But, for the same reason, the bows and 
arrows of the hunters would not all be exactly 
alike merely because they were the product of 
the same number of day's labor by each of them. 
There is a difference in bows and arrows and in 
the men who use them. Everybody could not 
bend the bow of Ulysses, or shoot like William 
Tell or Robin Hood; nor could every Israelite 
kill Goliath with a sling, nor with David's sling. 
In every stage of society men differ, physically 
and mentally ; fish, game, and other things vary 
in quality and quantity ; one generation continu- 
ally dies out and another succeeds,* having dif- 
ferent capacities, tastes, and desires from their 
fathers ; n, or relative demand (Eq. 5), and x, or 
relative cost, both vary. It is, therefore, hardly 


worth while to assert or assume that all men are 
exactly alike, as if they were cut out by some 
machine, and thereupon to assert that under free 
competition and with equal facilities, all hunters, 
fishermen, or other competitors will produce the 
same amount in quantity or value in the same 
period of labor time or at the same cost. In fact, 
some men will produce more than others having 
the same facilities, from the same land, mine, 
factory, workshop, business, or occupation. If 
there is anything whose cost is uniform, i. e., the 
same to everybody, it ought to be pointed out, so 
that those who make a poor living, or fail in busi- 
ness, might engage in its production and succeed 
as well as anybody. 


The author cited also says (Ricardo, Chap. 2): 
"The exchangeable value of all commodities, 
whether they be manufactured, or the produce of 
mines, or the produce of land, is always regulated, 
not by the less quantity of labor which will sufiice 
for their production by those who have peculiar 
facilities of production, but by the greater quan- 
tity of labor necessarily bestowed on their pro- 
duction by those who have no such facilities ; by 
those who continue to produce them under the 
most unfavorable circumstances, meaning by the 
most unfavorable circumstances the most unfavor- 
able under which the quantity of produce required 
renders it necessary to carry on the production." 





From this it follows that since one person, 
with the same facilities, will produce more than 
another in the same period of labor time, from 
the same land, mine, factory, or workshop than 
another, he does it by a less ''quantity of labor." 
Also, it is the quantity of labor "necessarily 
bestowed " on the most costly portion of "the sup. 
ply required " of it, which is the foundation, cause, 
or measure of the exchange value of the whole 
supply, per unit of quantity. When the cost of a 
product is not uniform or the same to everybody, 
" the quantity of produce required " determines 
the quantity of labor which must be necessarily 
bestowed on the most costly portion of such sup- 
ply. Wherefore, it would seem to be the fact 
that relative demand is the regulator of the 
exchange value of commodities, by determining 
how much cost shall be expended on the most 
costly portion of the supply required of each. 

When the cost of a product is not uniform, 
x.c or y.c (Eq. i) represents the cost per unit of 
the most costly portion of its supply. 

Every two commodities, the cost of both of 
which is not uniform, have an indefinite number 
of natural values. 

First. Suppose that the supply required of a 
product whose cost was not uniform remained 
constant ; if the production of the less costly por- 
tions of such supply increased or decreased, the 
cost of the most costly portions of such supply 
would vary. Some of the more efficient pro- 

ducers might die, or change their product for one 
which produced a greater profit, or by increasing 
their production save in cost per unit of product 
and make a greater total profit by taking a smaller 
profit per unit of product. 

Secondly. Suppose the cost of commodity " a " is 
uniform at 40c. per unit, while the cost of " b " is 
not uniform, the cost of the most costly portion of 
its supply being 15 c. per unit, then their relative 
value is " natural " when three units of " a " have 
the same market value as eight units of " b." If 
the supply required of " b " increased, the cost of 
the most costly portion of such supply would 
increase or decrease, depending upon whether 
such increased or decreased supply required an 
increased or decreased cost per unit for its pro- 
duction, e. g. 15 ± 5. For the plus sign, the rela- 
tive value of " a " and " b " would be called natural 
when one unit of "a " had the same market value 
as two units of " b." For the minus sign, their rela- 
tive value would be natural when one unit of " a " 
had the same market value as four units of "b." 

If the cost of both " a *' and " b " was not uni- 
form, then ^ (Eq. i) might become ^. 


In treating of money, the author cited says 
(Ricardo, Chap. 27) : " Gold and silver, like other 
commodities, are valuable only in proportion to 
the quantity of labor necessary to produce them 
and bring them to market. Gold is about fifteen 



times dearer than silver, not because there is a 
greater demand for it, nor because the supply of 
silver is fifteen times greater than that of gold, 
but solely because fifteen times the quantity of 
labor is necessary to procure a given quantity of it." 
According to this statement, if silver cost 
fifteen times as much as gold, to procure an equal 
quantity of it, silver would be fifteen times dearer 
than gold ; and if they could be procured at the 
same cost, their value would be the same for equal 
weights of each. But if everybody preferred 
gold to silver in dentistry ; a gold watch to a silver 
one ; money, plate, jewelry, and ornamentation of 
gold ; and if gold, in addition to being more beau- 
tiful and durable than silver, were more suitable 
for all purposes, then no silver would be wanted 
at an equal cost. Who would pay the same price 
for an inferior article ? But if silver has a greater 
use value than gold for some purposes, as being 
more sonorous, the best conductor of heat and 
electricity, of great use in photography, and for 
various purposes in chemistry and the arts, a 
supply of silver might be required to answer some 
or all of these purposes, although its cost equaled 
or even exceeded that of gold. Gold was " about " 
fifteen times dearer than silver, because it was 
wanted at its price, and not merely because it cost 
fifteen times more to produce it than silver. 
Neither metal could be procured unless its 
exchange value were sufl&cient to induce its 



Since about 1873 silver has been largely disused 
for money. Germany adopted a gold standard, 
and other countries have done and are doing the 
same ; also, electroplate, German silver, and other 
alloys have largely supplanted silver for various 
other purposes. Although the production of both 
metals has very greatly increased since 1873, yet 
in 1896 gold was over thirty times dearer than 

The cost of procuring either metal is not uni- 
form. Therefore, the author might have said 
that gold was about fifteen times dearer than sil- 
ver solely because the cost of the most costly 
part of the supply required of gold was fifteen 
times greater than the most costly part of the 
supply required of silver, for equal weights of 
each. And unless he ascertained in units of labor 
what was the quantity of it "necessarily bestowed " 
on the most costly portion of the supply of each 
metal, per ounce, or other unit of quantity, he 
probably measured the relative cost of their pro- 
duction by their relative market value for equal 
weights of each, and which then made gold 
** about" fifteen times dearer than silver. 

Gold occurs in an almost pure state in the beds 
of streams, in alluvial deposits, in certain rocks, 
and also combined with other metals and sub- 
stances in veins or lodes. Silver rarely occurs 
native, but is found in deposits and veins of its 
ores combined with other metals and substances, 
sometimes with gold. The deposits and veins of 





both metals vary greatly in richness and facility 
in mining and extracting the precious metal. 
The same mine varies continually in this respect, 
rarely producing for any length of time a uniform 
kind and quantity of ore. In some cases the prec- 
ious metals, or one of them, is the chief product, 
and the baser metals, or some one or more of them, 
are a by-product. In other cases the precious metal 
is the by-product. There are mines of lead and of 
copper containing precious metal, and especially 
silver, in the ore, which would be extracted 
although its value was quite nominal. Twenty 
ounces or less of silver in a ton of pig lead greatly 
injures its value. In some countries mining is 
done mainly by manual labor, and the ore reduced 
by crude and primitive methods ; in others, mining 
and reduction of the ore is done by and with the 
latest improved methods and machinery. 

Some countries produce gold only, as Africa, 
Brazil, also formerly the United States and Aus- 
tralia; others, silver, as Peru; others produce 
both. Great Britain produces neither, except to 
a very small amount and as a by-product ; yet the 
London quotations fix daily the relative value of 
gold and silver throughout the commercial world. 

Those who produce the most costly portion of 
the supply of either metal, wherever they may be, 
do so for a reward, actual or expected, which they 
deem adequate, each of them measuring cost and 
its reward for himself. A Chinaman will work over 
a placer which has been abandoned by an Ameri- 

can and find gold enough to reward his sacrifices. 
According to Jacobs (" Precious Metals," Chap. 
25): " In Columbia, river washing is extensively 
practiced. The sand at the bottom of the rivers 
abounds in particles of gold and platinum, but the 
labor is attended with little profit. It is carried 
on by an indolent race of independent peasants, 
who have few wants, and who, by some exertion 
and occasional success, gain sufficient to subsist 
on scanty resources." 

The cost of foreign products, e. g., gold and 
silver in England, is the cost of their acquisition 
(Ricardo, Chap. 7). If an English trader ex- 
changed or exchanges glass beads, colored cloth, 
rum, etc., for gold on the coast of Guinea, in this 
exchange of equivalents (?) the trader might say 
that the negro's reward outweighed its cost, or 
else he would not have worked for it, and might 
also say the same as to an exchange of English 
wares for gold with an Asiatic or a South Ameri- 
can Indian, or for silver with a Peruvian or Mex- 
Neither metal would be acquired always, 


everywhere, and by every trader, or any one of 
them, at the same cost. 

It is the exchange value, or general purchasing 
power, of either metal which justifies its pro- 
duction or acquisition, and not merely its value 
relative to the other ; therefore, if the exchange 
value of either be increased by any means affect- 
ing the demand for it, that will extend the margin 
of its production and increase its supply, while a 





decrease in its exchange value, caused as above, 
will discourage its production and tend to decrease 
its supply. Also, a decrease in the cost of pro- 
duction of either, caused, e. g., by improvements 
in mining and metallurgy, stimulates its produc- 
tion and tends to increase its supply. 

According to the report of the Director of the 
Mint for 1896, p. 221, the average commercial 
ratio of silver to gold during 1894 was 32.56 ; dur- 
ing 1895 was 31.60; during 1896, 30.66, or an 
average for the three years of 31.27 to i. 

The same report, p. 46, gives the approximate 
stock of money in the principal countries of the 
world in dollars (counting gold per fine ounce = 
$20.671834, and silver per fine ounce =$1.292929, 
p. 230). Gold, $4,143700,000 ; silver, full tender! 
$3,616,700,000; limited tender, $620,200,000; un- 
covered paper, $2,558,000,000. 

The product of both metals has been increas- 
ing for many years, very great improvements 
having been made in mining and in metallurgy. 
As to the effect of the cyanide process, see p. 132 
of the report. The production during 1895 was : 
Gold, fine ounces, 9^694,640= $200,400,000 ; silver, 
fine ounces, 168,308,3 5 3 =$2 17,610,800 (p. 232 of 
the report). At this rate of production the 
amount produced in about twenty years would 
equal the world s present stock of gold and silver 

Although the most costly portion of the 
increased and increasing supply of silver has been, 

and continues to be, produced at a profit sufficient 
to induce its production, the producers of silver 
and others, who constitute a numerous and 
powerful party, insist that the relative value of 
the two metals shall be fixed arbitrarily and by 
force of law at a ratio more favorable to silver 
than the existing commercial ratio, by means of 
what is called bimetallism, or the free and 
gratuitous coinage of the two metals at such fixed 
legal ratio. Since everything is bought and sold 
for money the world over, it is insisted that inter- 
national bimetallism at a fixed ratio as above will 
cause the commercial ratio to agree with it, 
although free coinage by one nation only would 
not have that effect, but merely cause its money 
to consist of the cheaper metal. 

If bimetallism as above were universally 
adopted, unless there were a uniform system of 
coinage, foreign trade would be carried on as now, 
by estimating metal, whether coined or not, as 
so much bullion. A people accustomed to 
pounds, shillings, and pence, or other system of 
money, would hardly consent to use strange coins 
and systems of money, or precious metal in the 
form of bullion, as it was used in the time of 
Abraham. Also, although both metals were 
freely coined everywhere, a whole people, or a 
whole community, or individuals separately, 
might, and probably would, stipulate for payment 
in the kind of coin which they preferred, and 
which would probably be the one with which they 




had become familiar, and by means of which they 
had been accustomed to estimate values. Also, 
some nations prefer to have a large part of their 
currency in paper money, and some from choice 
or necessity have no other kind. Heretofore 
every nation has adopted a kind and system of 
money which suited its people and their condition. 
International bimetallism would be indefinitely 
postponed if it were necessary to wait until it was 
universally agreed to. If the countries which now 
refuse free coinage to silver, or the principal part 
of them, as, for example, the United States, Great 
Britain, Canada, Egypt, Australia, France, Ger- 
many, Belgium, Austria- Hungary, Netherlands, 
Denmark, Sweden, and Norway, would agree to 
adopt bimetallism at the ratio of, e. g., 15^ to i, it 
would be quite as much as can be expected. Those 
using a paper or silver currency may be omitted. 
The money of the countries above named, ex- 
pressed in United States dollars coined at the 
ratio of 15.988+ to i, consists of $3,255,000,000 in 
gold; $1,214,800,000 in full tender silver; and 
$1,113,200,000 in uncovered paper (Report of the 
Director of the Mint for 1 896, p. 46). According to 
the above report, p. 232, the world's production of 
gold and silver during 1895, expressed in United 
States dollars, was $418,016,800. Deducting one- 
fifth of this for the new bullion used in the indus- 
trial arts, and assuming that all old material derived 
therefrom is again used solely for that purpose, 
then at the rate of production of the precious 



metals during 1895 there could be added to the 
currencies of the gold-standard countries above 
named, coin to the amount, as expressed in 
United States dollars, of $335,000,000 per annum, 
which, in less than fourteen years, would double 
the full legal-tender coins of those countries, and 
enable them also to double their present stock of 
uncovered paper. All of the new bullion would 
be coined in gold standard countries. For silver, 
when coined there, would have its purchasing 
power doubled and a debt-paying power at the 
fixed ratio equal to gold. For example, every 
debt payable in England would become at once 
payable in silver pounds sterling coined at the 
ratio, e. g., of 151^ to i. No gold or silver bullion 
would be coined in silver standard countries, e. g., 
into rupees ; for the silver in those countries' must 
rise to its value as bullion, which would probably 
be caused by its exportation for coinage in the 
gold standard countries. 

International bimetallism as above, if adopted 
and enforced, would double the gold price of silver, 
enrich its present producers, extend the margin 
of its production, greatly increase its supply, 
decrease prices and increase debts in silver stand- 
ard countries, raise prices, lessen debts, encourage 
speculation, and (it is said) thereby give a fillip 
to business in gold standard countries. 

An advocate of bimetallism (F. A. Walker), 
who favors cheap money and the ** fillip" idea] 
declines to base his argument on any specific 




ratio, with good reason, for the question is, bi- 
metallism being agreed to, how cheap shall money 
be made ? Since the coinage ratio to be adopted 
is purely arbitrary, suppose it were fixed at i to i. 
The total output of silver during the two years 
1894-5 was 332,918,747 fine ounces (above report, 
p. 232), which at $20.67 per ounce would coin into, 
in United States dollars, over $6,769,000,000 ; three 
years of product would coin into more than the 
world's present stock of coins. This hardly seems 
desirable, unless a confiscation of all debts and 
the adoption of a Chinese currency is considered 
to be so. How much ought debts to be confis- 
cated and prices be raised in order to give the 
proper '* fillip" to business? 

Another advocate of international bimetallism 
(" Popular Fallacies Regarding Bimetallism," by 
Sir R. P. Edgcombe, p. 143) says that the Argentine 
paper dollar, worth one-quarter its nominal value 
in gold, enabled that country to undersell India in 
wheat, whose silver rupee had only depreciated 
one-half. Sundry American advocates of bimet- 
allism insist that the depreciated India rupee has 
enabled that country to undersell the United 
States in the same article. From this it would 
seem that if the United States would adopt 
a paper currency more depreciated than 
that of Argentine, this country could under- 
sell all the world in all products. The proper 
way to enrich this country is to make the 
dollar smaller. 



If a cheap money is desirable, why not have an 
exclusively paper currency? It is workable al- 
though made very abundant. After it has given 
one "fillip" to business, make the money more 
abundant and give business another ''fillip." 
Why not adopt an international paper money, so 
that no nation will be enabled to enrich itself and 
undersell others by cheapening its money, and 
the whole world thereby enjoy " the endless bene- 
fits of a common currency" at a nominal cost? 

It is asserted by the advocates of the free coin- 
age of silver that gold has appreciated since 1873, 
relative to other things, because their gold price 
has fallen ; not because of the decreased cost of 
their production, but because of the appreciation 
in the value of gold. Wages have greatly in- 
creased since 1873, as estimated in gold coin. 
Hence, gold has not appreciated, but in fact de- 
preciated relative to wages ; gold wages have in- 
creased greatly, and real wages, or the purchasing 
power of money wages, still more. This point is 
attempted to be evaded by saying that the laborer 
gets a larger share of the product than he did 
before. But his labor, aided by improved meth- 
ods and machinery, has become more productive 
than it was in 1873, so that although he gets more 
product, it does not follow that he gets a larger 
share of the total product than before. Whether 
he does or not, in this country money wages are 
paid in gold or its equivalent, and since the 
laborer gets more gold for his labor than he did 



in 1873, therefore, in this country at least, gold 
has depreciated relative to labor. According to 
very high authority, labor is the real measure of 
the exchange value of all commodities. In the 
Presidential canvass of 1896, the laborers gener- 
ally failed to see that wages paid in cheap dollars 
would benefit them. If it were desirable to pay 
them in such dollars, it could be more readily 
effected by a paper inflation of the currency than 
by its inflation with silver dollars coined at 15^^ 
to I. 

The effect of international free coinage would 
seem to be to discourage the production of gold 
and encourage the production of silver ; to narrow 
up the margin of production of the former, and 
extend that of the latter. 


In another illustration of the theory that the 
exchange value of products is in proportion to 
the quantity of labor, direct and indirect, be- 
stowed on their production, it was said (Ricardo, 
Chap. I, Sec. 3): "In estimating the exchange- 
able value of stockings, for example, we shall 
find their value, comparatively with other things, 
depends upon the total quantity of labor neces^ 
sary to manufacture them and bring them to 
market. First, there is the labor necessary to 
cultivate the land on which the raw cotton is 
grown ; secondly, the labor of conveying the cot- 
ton to the country where the stockings are to be 



manufactured, which includes a portion of the 
labor bestowed in building the ship in which it 
is conveyed, and which is charged in the freight 
of the goods; thirdly, the labor of the spinner 
and weaver ; fourthly, a portion of the labor of 
the engineer, smith, and carpenter who erected the 
buildings and machinery, by the help of which 
they were made; fifthly, the labor of the retail 
dealer and many others whom it is unnecessary 
to particularize. The aggregate sum of these 
various kinds of labor determines the quantity of 
other things for which these stockings will ex- 
change, while the same consideration of the vari- 
ous quantities of labor which have been bestowed 
on those other things will equally govern the por- 
tion of them which will be given for the stock- 

Although not mentioned in the statement 
above quoted, yet the fact is that no one would 
prepare land for cultivation, build ships, make 
stockings and other things for the purpose of 
exchange unless a right of property existed and 
its owner was protected in its enjoyment ; there- 
fore, a portion of the various kinds of labor ex- 
pended to protect persons and property on land 
and water against robbers, pirates, and others 
who claim an equal right to the earth, would fig- 
ure in the above mentioned *' aggregate sum " 
unless such protection was furnished gratis. 

Also the cost of a foreign product, e. g. cot- 
ton in England, is the cost of its acquisition, and 





not of its production (Ricardo, Chap. 7). In order 
to state "an aggregate sum" correctly there must 
be not only a proper unit, but also the proper 
items. Therefore, it seems quite proper to inquire 
what the stockings cost their maker. The pro- 
ducers of cotton, machinery, etc., sell their 
products, either directly or indirectly, to him, so 
that it is the cost of the stockings to him relative 
to their exchange value which induces their pro- 
duction by him. The cost of the cotton, mill, 
machinery, etc., to him would be the then value 
of what he gave for them, whatever may have 
been theretofore the cost to him of acquiring the 
means necessary to make the purchase. Whether 
he obtained such means by the very painful 
exercise of industry and frugality during a long 
period of time, or from profits realized by him in 
the production of the less costly portion of the 
supply required of some commodity, or from 
speculations in buying and selling, or by gift or 
inheritance, his capital would equally enable him 
to engage in the manufacture of stockings. 

Laborers, although properly instructed and 
directed, can not build a ship, make machinery, 
etc., unless they are provided with subsistence,' 
implements, and materials. No one can produce 
anything for sale unless he possesses means suffi- 
cient to procure the necessary materials and im- 
plements, and to support him until his product 
by its sale will replace his outlays ; thereafter his 
further outlays are made from the replacement of 


his capital by the sale of his product, if sufficient 
for the purpose. 

The theory of natural value is based on free 
competition, which is limited to those who have 
the necessary capital and are induced by a suffi- 
cient motive to take part in it. They determine, 
in view of the present and prospective market 
value of commodities, what things shall be pro- 
duced for sale, each of them deciding for himself 
what his product shall be. If every competitor 
thought he could obtain a better reward for his 
labor and capital in some other way, no cotton 
stockings would be produced for sale ; for in such 
case their exchange value, in the opinion of each 
competitor, would be below their cost of produc- 
tion to him. The relative cost of products, which 
is said to regulate their relative value, is their 
relative cost to those who own and produce them 
in the market for sale. 

Those who work for hire do not determine the 
nature of the product nor the method of its pro- 
duction. If any of them do, they are not ordinary 
hired men, but as managers or foremen are paid, 
often large sums, for their mental labor and busi- 
ness ability. Hired laborers do what they are 
directed to do by their employer for a reward to 
be paid to them whether their labor produces any- 
thing of value or is profitable to their employer 
or not; that is a matter for him to consider. 
When there is a loss his hired men set up no claim 
to a share in it. The cost of hired labor to him is 




the value of what he pays for it. Wages is one 
of his outlays, which he pays out of his capital 
when he begins business, and thereafter from its 
replacement by the sale of his product, if suffi- 
cient for the purpose, and if not, then from his 
other resources. 

According to the author cited, the cost of the 
stockings consists of the labor bestowed on the 
cotton and a portion of the labor bestowed on the 
ship, mill, machinery, etc. The stocking-maker, 
by the purchase of them, steps into the shoes of 
their producers, who, without capital, could not 
have produced them ; for even the hunter could 
not kill game without a weapon. If no more 
stockings could be produced by the same •* quan- 
tity of labor" intelligently directed, or "neces- 
sarily bestowed," when a part of it is indirectly 
expended upon a knitting mill than if all the 
labor were directly expended in knitting the 
stockings by hand, there would be no motive for 
building it ; nor would there be any such motive 
unless the stocking-maker could gain something 
by its use, instead of employing laborers to spin 
the yam on spinning wheels and knit the stock- 
ings with knitting needles. How they could 
make the stockings without implements of some 
kind would seem to be more difficult than to kill 
game without a weapon. 

But it is said that while implements are pro- 
ductive of quantity, they are not productive of 
value. For (Ricardo, Chap. 20): "If an improved 



piece of machinery should enable us to make two 
pair of stockings instead of one, without addi- 
tional labor, double the quantity will be given 
for a yard of cloth. If a similar improvement be 
made in the manufacture of cloth, stockings and 
cloth will exchange in the same proportion as 
before, but they will both have fallen in value ; 
for in exchanging them for hats, for gold, or 
other commodities in general, twice the former 
quantity must be given. Extend the improve- 
ment to the production of gold and every other 
commodity, and they will regain their former 
proportions. There will be double the quantity of 
goods annually produced in the country and there- 
fore the wealth of the country will be doubled, 
but this wealth will not have increased in value." 
But, in such case, every commodity, per unit 
of quantity, would have the same purchasing 
power as before the increase ; and the number of 
units being doubled, their value expressed in 
terms of a unit of any one of them, as an ounce 
of gold, would be doubled, although their ratio 
of exchange per units of quantity remained the 
same. Also, in such case, if a hired laborer, oper- 
ating the improved machinery, received for the 
same " quantity of labor " the same number of 
units of commodity as before, they would have 
the same purchasing power and the same value 
to him as before ; the increase in quantity being 
due, as above supposed, solely to the improved 
machinery, would justly belong to its owners. 





If the original quantity were doubled, not by 
improved machinery, but by the laborers working 
longer hours and with greater diligence, or by 
doubling the number of laborers, commodities 
would, according to the author cited, exchange in 
the same proportions as before. In this case, 
also, there would be double the quantity of com- 
modities produced in the country, and therefore 
the wealth of the country would be doubled, but 
this wealth would not have increased in value 
any more than if the quantity were doubled by 
using improved machinery, as above supposed. 

The author cited also says (Chap. 20): "If ten 
men turned a corn mill, and it was discovered 
that by the assistance of wind or water, the labor 
of these ten men may be spared, the flour which 
is the product partly of the work performed by 
the mill would immediately fall in value in pro- 
portion to the labor saved." If so, the owner of 
the old mill would gain nothing by discarding it 
for the new one, even if he could have it for noth- 
ing. It is also said (Ricardo, Chap. 30) : " If the 
natural value of bread fell 50 per cent, the demand 
for it would not greatly increase, for no one would 
desire more than would satisfy his wants, and, as 
the demand would not increase, neither would the 
supply, for a commodity is not supplied because 
it can be produced, but because there is a demand 
for it." In such case consumers would obtain 
their supply of bread for one-half as much of their 
products as before, thus leaving the other half 

unsold, while those whose labor was saved would 
be compelled to compete with them in order to 
obtain their supply of flour and other necessaries. 
If double the original quantity of bread was 
produced, the supply would be nearly 100 per cent 
in excess of the demand. And since the supply 
must conform to the demand in order to exchange 
or sell at its natural value, it follows that mis- 
directed labor confers no value, or at least no 
value in proportion to its quantity. Somebody 
must determine beforehand whether there is a 
demand for a product, and if so take the risk that 
the supply is not in excess of the demand. Hired 
laborers merely perform the task assigned to 
them ; whether the result of their labor will be 
worth much, little, or nothing is not for them to 
determine. Their claim to a reward rests upon 
the ground of monopoly ; an employer can have 
their labor by paying for it, otherwise not. The 
least they can permanently accept is a subsist- 
ence for themselves and their families ; the most 
an employer can afford to give is an amount 
which will leave his capital intact and also a sup- 
port for him and his family. Between these 
limits the amount of reward to be paid for hired 
labor is a matter of negotiation between the 
parties. When the employer can gain by adopt- 
ing improved methods and machinery, he adopts 
them instead of using hired labor. 

A blind horse hitched to a lever, with his 
halter fastened to a pole in front of him, will lead 




himself round and do the work of several men, or 
the propelling force maybe wind or water. 

Adam Smith says that, in the first steam 
engines, a boy was constantly employed to open 
and shut alternately the communication between 
the boiler and the cylinder, according as the piston 
ascended and descended. A boy thus employed 
observed that by tying a string from the handle 
of the valve which opened the communication 
to another part of the machine, the valve would 
open and shut without his assistance. Thereupon 
the string dispensed with the labor of the boy. 

He also says: **A broad- wheeled wagon, 
attended by two men and drawn by eight horses, 
in about six weeks' time, carries and brings back 
between London and Edinburgh, near four ton 
weight of goods. In about the same time a ship 
navigated by six or eight men, and sailing 
between the ports of London and Leith, fre- 
quently carries and brings back 200 ton weight of 
goods. Six or eight men, therefore, by the help 
of water carriage, can carry and bring back in the 
same time the same quantity of goods between 
London and Edinburgh as fifty broad-wheeled 
wagons attended by 100 men and drawn by 400 
horses. A train of cars, attended by six or eight 
men or less, will now carry between the same 
points a much greater quantity of goods in less than 
one-tenth of the time. An ocean steamer, carry- 
ing thousands of tons of freight and hundreds 
of passengers, will cross the Atlantic in a week. 



In the time of Adam Smith, ten men, by exert- 
ing themselves, could make 48,000 pins in a day. 
In 1888 a machine made 180 pins of a greatly 
superior quality in a minute. The coil of wire 
was put in its proper place, the end fastened, and 
the almost human piece of mechanism with its 
iron fingers did the work. Seventy machines 
were tended by three men, while a machinist 
with a boy helper kept them in order. After 
allowing for stoppages, the machines produced 
per day over 20,000 papers of pins of 300 pins 
each. ('* Recent Economic Changes," by Wells, 
p. 60.) In Adam Smith's time an expert nailer 
could make several hundred nails per day; now a 
machine makes them by the kegful. 

The cotton gin superseded a great part of the 
labor previously required to separate the cotton 
from the seed ; and machinery now, almost auto- 
matic, converts the cotton into a great variety of 
fabrics. The age of handcraft ended and the age 
of machinery began about 1 770-80. According to 
Mulhall, spinning machinery attended by one 
operative produced as much yarn in 1 8 1 5 as 200 
could a few years before; in 1855 the ratio had 
more than tripled. The crane at the Cologne 
Cathedral, in 1870, with two men did the same 
work, in lifting stone, in one hour as required 
sixty men working twelve hours in the middle 
ages. A California harvester cuts, threshes, and 
bags sixty acres of grain in a day, and a roller mill 
will make 10,000 barrels of flour in the same time. 








Implements and machines do better work than 
can be done without them, and work which would 
be otherwise impossible. Watt thought that he 
had done well when he made a piston and cylinder 
agree to within three-eighths of an inch; now they 
can be made so accurately that the piston feels 
quite loose in the cylinder when their diameter 
differs only one-five-thousandth part of an inch. 
Instruments measure distance, area, volume, 
weight, time, force, light, heat, velocity, electricity, 
gild, carve, set type, talk, play music, make pic- 
tures, discover microbes, nebula, and the elements 
composing the stars, send a message around the 
world in a few seconds and the human voice a 
thousand miles. There is also the machine to 
make a machine. 

In the early stages of society, laborers make 
their own implements and therewith kill deer, 
beaver, and catch fish. Population is sparse and 
their living poor enough. In the later stages of 
society, the producer, with his own capital or bor- 
rowed, buys his materials and instruments, hires 
laborers to work for him, and if the exchange 
value of his product exceeds his outlays, he makes 
a profit, otherwise not. Whereupon, taking linen 
instead of cotton stockings, it is said (J. S. Mill, 
B. 3, Chap. 4) : " The flax spinner, part of whose 
expenses consists of the purchase of flax and of 
machinery, has had to pay in their price, not only 
the wages of the labor by which the flax was 
grown and the machinery made, but the profits of 



the grower, the flax dresser, and the machine 
maker. All of these profits, together with those 
of the spinner himself, were again advanced by 
the weaver, in the price of his material, linen 
yam ; and, along with them, the profits of a fresh 
set of machine-makers and of the miners and iron 
workers who supplied them with their metallic 
material. All of these advances form part of the 
cost of the production of the linen. Profits, 
therefore, as wel as wages, enter into the cost of 
production, which determines the value of the 

To this he might have added, that all these 
wages and profits make linen cost less per yard than 
if the grower of the flax had made the linen him- 
self. Every additional person who participates 
in the production of linen does so only by being 
able to reduce its cost. And although every capi- 
talist, directly or remotely concerned in its pro- 
duction, and so also of other things, is above 
supposed to get a profit, the hired laborer obtains 
for his labor, necessaries, comforts, and luxuries 
beyond anything conceived of the savage laborer, 
who, '* in that original state of things which pre- 
cedes both the appropriation of land and the 
accumulation of stock," gets the whole product. 

According to Mulhall, the population of Eng- 
land in 1780 was about nine and one-half millions ; 
in 1880, over thirty-five millions, during which 
time the ratio of paupers to population greatly 

decreased ; the wages of common labor increased 




two and one-half times; real wages more. The 
increase in population is sufficient evidence of an 
increase in the well-being of the people. The 
hired laborer who competes with and is super- 
seded by some machine finds new demands for 
his labor and obtains more for it than before. 
Those laborers who can attend on machinery 
claim and get higher wages for their intelligence, 
skill, and mental labor. Mere physical force can 
be exerted by a machine or a beast. Both the 
hired laborer and his employer get a less reward 
per unit of product than in the days of hand- 
craft, but receive a much greater total reward. 
The greatly increased quantity of products fur- 
nishes more to consume and more to exchange at 
home and abroad. 


The cost of a product to its producer consists 
of his outlay expended on it, with a profit suffi- 
cient to induce him to produce it. This is the 
debit side of the account, for which the realized 
value of the product must compensate him or else 
there is a loss. What reward will induce a per- 
son to engage in or to continue to produce a thing 
is estimated by himself. If, however, he invests 
his capital and labor in any business, it may be 
thence inferred that the expected reward ex- 
ceeded its expected cost, and, if he continues in 
the business, not merely to retrieve his capital, it 
may be thence inferred that he obtains a reward 



which is by him deemed adequate and, in his 
opinion, is at least as great as he could otherwise 
obtain at the same cost to him. 

A producer makes outlays for plant (fixed cap- 
ital), for materials, hired labor, etc. (circulating 
capital). The plant deteriorates as time elapses, 
wears out, and may become old lumber by being 
superseded by something better. The materials 
are used up, the amount paid for hired labor, etc., 
is gone. His wealth exists "in supposition.'* 
Its investment lies open to loss from the elements; 
his own incapacity ; the inefficiency, negligence, 
ill-will, and dishonesty of his employes; the 
wrongful acts of evil-doers, and the fluctuation 
in the value of what he buys and what he sells. 
Present goods are certain and have a present 
value; future goods are uncertain as to their 
existence, amount, and value. Money, or money's 
worth, embarked in business does not always 
return to its owner, with or without a profit. 
Unless the value of the fixed capital as it oozes 
out of the plant is absorbed by the product it 
evaporates; unless the value of the circulating 
capital reappears in the product it ceases to cir- 
culate; and unless, on a proper balance struck 
between receipts and outlays, there is a balance in 
favor of the former he has lost among other 
things his labor. 

In August, 1894, the operatives in the cotton 
mills at Fall River and New Bedford struck, at 
which time, as stated in the newspapers, plain 




cotton cloth sold at 25^ cents per yard; wages 
being a cent a yard, besides which, there were 
repairs, depreciation of plant, materials, motive 
power, waste, cost of marketing goods, bad debts, 
taxes, and insurance. 

Outlays are made in money, the product is sold 
for money, and the profit or loss stated in money. 
Since everything is bought and sold for money, 
every person, in order to compare his reward with 
the sacrifice which he makes to obtain it, takes 
the money unit as the unit of cost and value to 
him, the cost of which to him is the cost of its 
acquisition by him, and its value to him is the 
benefit which he can derive from it or by means 
of it, and which must exceed or outweigh its cost 
to him in order to furnish a motive for its acquisi- 
tion. The money unit furnishes a measure of 
both, although it does not represent the same 
amount of either to everybody nor always to the 
same person, even if no alterations are made in 
the money. The wages of labor consist of money 
or money's worth, and money wages better enable 
a laborer to compare his reward with his sacrifice 
than payment in kind or out of a truck store. 

In socialism, labor for a certain period of time, 
e. g. an hour, is taken as the unit of cost and value, 
it being falsely assumed that labor for the same 
period of time causes the same amount of sacrifice 
to every person who undergoes it ; that in such 
time each of them will produce the same amount 
in product or value, and that the same amount of 



product will aflford everyone the same amount of 
satisfaction. If any difference is supposed to exist 
between one kind of labor and another, such dif- 
ference will be determined not by the laborer but 
by his overseers. Everything will be considered 
worth, in certificates of labor time, the quantity of 
labor time bestowed on its production, regardless 
of its quality ; e. g., a horse will be worth the same, 
if blind, unsound, and vicious, as if he was sound 
and kind. But it seems reasonable to suppose that 
any one who was compelled "to do time " under 
ground, in the mines, or on the surface at any 
work which was disagreeable to him, and who 
received for his certificates of labor time stale 
eggs, butter, meat, vegetables, and other things of 
an inferior quality, would consider a fluctuating 
paper currency in a state of freedom a better 
measure of cost and value than certificates of labor 
time in a state of slavery. 

Profit is said to consist of interest on capital, 
insurance against risk, and wages of superintend- 
ence (J. S. Mill, B. 2, Chap. 15). It being said 
that the return for abstinence from consuming the 
capital is interest at the current rate on the best 
security; such security as precludes any appre- 
ciable chance of losing the principal ; that the rate 
of profit greatly exceeds this, a part of which is 
compensation for risk, called insurance ; for capi- 
tal embarked in business is always exposed to 
some and in many cases to very great danger of 
partial or total loss, for which there must be com- 



pensation, or the risk will not be incurred ; that to 
control the operations of industry with efficiency 
requires great assiduity and often no ordinary 
skill, which must be remunerated ; the rest of the 
profit goes for this purpose, called, as above, wages 
of superintendence. 

The wealth of this country is said to have 
increased about 50 per cent in the decade 1880-90, 
a period of peace and great prosperity, being an 
increase of a little over 4 per cent per annum. 
During the same time the population increased 
over 30 per cent. A large part of this increase in 
wealth consisted of savings from wages and sal- 
aries; the deposits in the savings banks alone 
amounted in dull times, after the panic in 1893, to 
wit, in 1894, to over $1,800,000,000. The current 
rate of interest during the above period was not 
less than 4 per cent per annum. Deducting the 
savings of hired labor, either risk was great or 
the abstinence, assiduity, and skill were small. 
According to Giffen, the increase in the wealth of 
Great Britain in the decade 1875-85 was less than 
25 per cent. The money sunk in the Panama 
Canal was largely derived from the savings of 
French laborers. 

Misdirected and mismanaged capital produce 
loss instead of profit. In time past many States 
of the Union spent large sums on canals and 
roads, few of which proved to be of any value, 
the result being high taxes, general poverty, and 
in some cases State insolvency. Prior to 1589 Sir 



Walter Raleigh sunk ;^40,ooo in his efforts to 
colonize Virginia. One-fourth of this sum at 5 
per cent per annum, compounded half-yearly, 
would now greatly exceed the present wealth of 
Great Britain. So also would a penny at the time 
of the Norman Conquest. 

Because the owner of capital can demand inter- 
est, capital is said to beget a profit, and therefore 
to be capable of perpetual growth and increase. 
But capital can also beget a loss. Many discover 
that capital has wings ; that its essence, value, is 
volatile. Debts are not always paid in full with 
interest ; even banks and governments sometimes 
make default in payment, and some who hide 
their treasure fail to find it again. Besides loss 
from the elements, war, civil commotion, and the 
acts of evil-doers, there is great risk that the per- 
son who embarks his capital in business does not 
possess the personal qualities necessary to control 
his operations with efficiency. No underwriter 
will insure against this risk. Whether capital 
will beget a loss or a profit depends on its mana- 
ger, inevitable accidents excepted. 

In the same locality and in the same business 
one person or company will do better than an- 
other, the difference being due to the manage- 
ment. In 1 891, of the no mills at Oldham, 
England, the stock of sixty-seven of them was at a 
discount (** Methods of Industrial Remuneration,'* 
Schloss, p. 148, note). Of sixty-seven manufact- 
uring companies in Massachusetts, engaged in 



various kinds of business, including cotton and 
woolen manufactures, bleaching, belting and 
machiner>% being all or which figures are given 
for ten years, to wit, 1882^2, a period of great 
prosperity, ?iVQ stopped, seven had their capital 
impaired and renewed, and twelve increased their 
capital. These twenty-four companies taken to- 
gether paid less than one-half of i per cent per 
annum on their capital stock, and the whole sixty- 
seven taken together paid 2.06 per cent per 
annum on the average value of their capital stock. 
{Social Economist for September, 1892.) 

Of two similar mills making plain cotton cloth, 
one better managed than the other will make a 
greater profit, or make a profit while the other 
makes a loss, by saving in outlay and gain in the 
value of the product, as, by saving in repairs, de- 
preciation, waste, employing more efficient, care- 
ful, and honest employes, buying suitable material 
and selling product at the right time and to solvent 
parties. Cotton is not of uniform quality in the 
fiber, nor equally free from moisture, sand, dirt, 
and leaves. Both materials and product vary 
continually in price. 

Profit varies with the person according to his 
abilities and good fortune. Every owner of loan 
capital does not obtain the same rate of interest 
on the same security. Even the public funds 
vary in price. If a farmer with a capital equal 
to 1,000 quarters of corn produces i ,200 quarters 
one year, his product will probably be more or 






less the next; and his profit would not be 20 
per cent in corn unless the product was of the 
same quality as his capital, nor in value, unless 
the product per quarter was worth the same as 
the outlay. Also if one farmer, on an average, 
made a profit of 20 per cent in corn or in 
value, all farmers with an equal capital will not 
do the same, nor will others in other occupations 
all make that profit by becoming farmers. 

Those who make the greatest profit on their 
capital often do so by making a low rate of profit 
per unit of product and by quick sales turn over 
their circulating capital often during the period 
for which profit is computed. And it is the total 
profit which a person can make in his occupation 
that determines the direction of his competition, 
while it is the cost per unit of product that is said 
to determine its natural value. 

It is said (J. S. Mill, B. 2, Chap. 15): " Profit 
varies greatly with the person, and can scarcely 
be the same in any two cases. It depends on the 
knowledge, talents, economy, and energy of the 
capitalist or of the agents he employs, on the 
accidents of personal connection, and even on 
chance. Hardly any two dealers in the same 
trade, even if their commodities are equally good 
and equally cheap, carry on their business at the 
same expense or turn over their capital in the 
same time. That equal capitals make equal prof- 
its as a general maxim of trade would be as false 
as that equal age or size gives equal bodily 



Strength, or that equal reading or experience 
gives equal knowledge." 

But it is said that profit is no part of the cost 
of production, but is only a deduction from the 
product of the hired labor ; a tribute levied on it 
by the owner of capital by means of his monopoly. 
Adam Smith said that a master would have no 
interest to employ a workman unless his stock was 
replaced with a profit, which is a share in the 
produce of his workmen or in the value which 
their labor adds to the materials on which it is 
bestowed; that perhaps it may be thought that 
profit is only a different name for the wages of a 
particular sort of labor, the labor of inspection 
and direction ; that profit bears no proportion to 
the quantity, hardship, or ingenuity of this sup- 
posed labor; that in many great works almost the 
whole labor of this kind is committed to some 
principal clerk, whose wages express the value of 
this labor of inspection and direction. 

When capital is invested in great works or 
small ones, it must be replaced or the master 
would suffer loss, and if the workmen are paid 
wages, that must also be deducted, wherefore the 
profit can not be greater than what is left. 

But works, great or small, do not necessarily 
make a profit, large or small, so that there is an 
element affecting the result which is not consid- 
ered when it is said that profit is a share in the 
product of the hired labor. It being evident that 
great works would grow small and small ones. 



g^ow smaller without a manager, it is obvious 
there must be some "supposed labor" of inspec- 
tion and direction ; and if only a part of it is done 
by a principal clerk, his wages fail- to express the 
value of the whole of it. 

Suppose there is a loss or no profit, the work- 
men can say, we obeyed the orders and direc- 
tions g^ven to us ; we are not responsible for the 
result ; we are entitled to our wages wholly irre- 
spective of the result. The principal clerk can 
also say, I executed in detail the general orders 
g^ven to me, therefore I am entitled to my wages 
like the other hired men. I did not determine 
the general or specific nature of the product, sell 
it, or buy the materials. Or, suppose he does all 
the "supposed labor" of inspection and direc- 
tion, and there is a loss. He could say : I was 
employed to run the works and produce the com- 
modity which constitutes its product, e. g. cotton 
stockings, thread, cloth, bicycles, or some other 
article. There was no adequate demand for the 
product, the business was already overdone, or 
the price of materials and labor was too high, etc. 
And even if his employer could say : Mr. A. ran * 
his works and made a profit while you made a 
loss, the principal clerk might reply, I performed 
my duty to the best of my ability and that is all I 
agreed to do ; therefore pay me my wages. 

An owner of a ship and cargo employs a cap- 
tain and crew to make a certain vo3'^age. The 
crew set and furl the sails, raise and drop the 




anchor as directed. The ship arrives at the des- 
tined port, the cargo is landed and disposed of as 
directed. The captain and crew earn their wages 
irrespective of the result, and are entitled to no 
more or less, whether there is a profit or a loss. 

Another author (Rodbertus) asserts that goods 
are the product solely of the labor, direct and 
indirect, which performs the material operations 
necessary to their production. For example, a 
newspaper is the product solely of those who per- 
form the material operations necessary to make 
the paper, ink, type, printing press, and to print 
the newspaper. Obviously some "head-work" 
was necessary to effect this final result. But 
waiving this, the value of the newspaper, except 
for base uses, and for which clean paper would be 
preferable, depends upon its contents. If these 
are worthless, so also is the newspaper, no matter 
how much labor may be expended on the mate- 
rial operations necessary to produce it. Obviously 
the asserter of this doctrine would be more pro- 
ductively employed in making printer's ink or 
setting type than in racking his brains to invent 
or maintain some theory intended to vest the 
hired laborer with an exclusive right to the whole 
product ; for, by his own theory, he produces no 
goods nor anything of value. 

It is said by J. S. Mill (B. 2, Chap. 15): - The 
reason why capital yields a profit is because food, 
clothing, materials, and tools last longer than the 
time required to produce them ; so that if a cap- 



italist supplies a party of laborers with these 
things on condition of receiving all they produce, 
they will, in addition to reproducing their own 
necessaries and instruments, have a portion of 
their time remaining to work for the capitalist. 
Thus we see that profit arises, not from the inci- 
dent of exchange, but from the productive power 
of labor, and the general profit of the country 
is what the productive power of labor makes it, 
whether any exchange takes place or not." 

This seems to be an artful statement of the 
doctrine more fully elaborated by the socialist 
(Marx), to wit, the laborers work a portion of 
their time to make a profit for the capitalist. 
Profit is a deduction from or a share in the prod- 
uct of their labor. From which it follows that 
if any party of laborers fail to produce a profit, it 
is solely because they do not work long enough ; 
their labor day is too short. Neither profit or loss 
is at all due to the " inspection and direction " 
of the capitalist, for he is supposed to do nothing 
except to furnish the capital. Production is not 
carried on in that way. The capitalist supplies 
himself with the necessary means and instru- 
ments, and hires laborers to do as he and his fore- 
man direct. For their work he pays them wages, 
and if the exchange value of his product exceeds 
his outlays he makes a profit, otherwise not. If 
he makes a profit, he is said by the socialist " to 
exploit " his laborers. If he makes a loss, he may 
be said to " exploit" himself. 






A party of laborers without a manager would 
be like an army without a general, a mere mob, 
fit only to tread on each other's heels. Until 
laborers can make voluntary cooperation a suc- 
cess, their proper course is to deposit their sav- 
ings in banks, to be loaned out at interest to their 
employers, or used as a fighting fund to maintain 
strikes for higher wages. When coercive coop- 
eration or socialism is adopted, the managers of 
the scheme must determine beforehand what 
things shall be produced, how much of each, in 
what manner, by whom, and by the proper sub- 
alterns see that every man performs his allotted 
task, for otherwise the molecules of the social 
organism would suffer from inanition. The labor- 
ers will allow something as a deduction from 
the product of their labor to their managers and 
overseers on the score of equality and fraternity, 
for they do no labor, properly so called. The 
brain of this social octopus will be a parasite 
feeding upon what is gathered by its legs and 

Also exchange value has something to do with 
the existence and amount of profit. For if any- 
thing is produced for which there is no adequate 
demand, because there is already an overstock, or 
because it is not wanted, there is little hope of 
profit, however productive of quantity the labor 
bestowed upon it may be. Laborers operating a 
knitting mill would produce stockings of some 
sort. Their product, however great, could not 

reproduce their necessaries and instruments 
with or without a profit, except by way of 
exchange, and not then unless the exchange 
value of the product was sufficient for the 
purpose. If the product remained unsold, or 
was unsalable, the laborers could not repro- 
duce even their victuals, although they worked 
night and day. 

The quantity of products is not increased by 
exchanging them, nor by transporting them from 
where they are not to where they are wanted, but 
their value is. If either party to an exchange 
gained nothing by it, there would be no motive 
on his part for making it. If wheat had no 
greater exchange value abroad than at home 
there would be no motive for its exportation. A 
product in excess of what its producer can use or 
consume himself is worthless to him except for 
the purpose of exchange, and its value to him is 
in proportion to its purchasing power. If surplus 
products remained in the hands of their pro- 
ducers, manufacturers would starve, while farmers 
would go naked. Without exchanges, surplus 
products might be called potential wealth — until 
they rotted. But as actual wealth they are meas- 
ured by their value, which is greatest when they 
have reached the hands of those who want them 
the most, to wit, their consumers, although after 
their consumption nothing is left of them except 
the benefit they have conferred in the satisfaction 
of wants. 



Since more goods can be produced by the aid 
of capital than without it, even if their ratio of 
exchange remain the same when produced in 
such vast quantities by machinery, more or less 
automatic, as when everything was hand-made, 
there are more things to consume and exchange 
than before, and therefore the aggregate exchange 
value of each of them has manifestly increased. 
The intelligent socialist loves capital so much 
that he wants to acquire it, not by the exercise 
of industry and frugality, but by confiscation. 
He wants to stand in the shoes of the capitalist, 
and enjoy the use and benefitof his capital. Not 
that he really thinks that a party of laborers, 
without a competent manager, if supplied with 
food, clothing, materials, and tools, will reproduce 
their necessaries and instruments and still have a 
portion of their time left to work for the capitalist, 
but because the managers who will do the head- 
work and will possess and control everything, will 
have him among their number, perhaps as their 
chief. To furnish a pretext for the confiscation 
of capital, it is asserted that hired laborers, after 
reproducing their necessaries and instruments, 
work an additional period of time to make a profit 
for the capitalist, which profit is surplus labor 
value extracted by him out of them, and which 
continually adds to and causes the growth of 
capital. But since no one could or can hire 



laborers unless he had or has acquired capital, it 
is necessary to attack its original acquisition. It 
was said by the socialist (Marx) : "At the dawn 
of capitalist roduction— and every capitalist up- 
start must go through the historical stage- 
avarice and the desire to be rich were the ruling 
passions." The socialist wants to confiscate 
capital in order to punish greed; the frugality 
and abstinence necessary to maintain it after- 
wards to be endured and suffered as a national 
calamity by the body politic as a social organism. 
In this country the origin of capital is not lost in 
the mists of antiquity. Poverty migrated and 
migrates here, not wealth. In a wide continent, 
where all had equal opportunities, those who were 
diligent and frugal acquired wealth, more or less, 
depending upon their abilities and good fortune. 
And such is still the case ; a large part of the con- 
tinent still remains unsettled, while land in many 
of the oldest States can be acquired at a nominal 
price. In fact the industrious and frugal man 
makes savings everywhere, although in some 
countries he must conceal his treasure to prevent 
its confiscation by the public or private robber. 
Doctor Franklin saved money while working for 
wages as a printer in London ; he drank water 
while his co-workers drank beer. Poor Richard 
said : ''Without economy no revenue is sufficient." 
Savings enable a laborer to acquire implements, a 
stock in trade, or land and cattle. After he has 
acquired sufficient to be his own employer, he is a 




capitalist. The hired laborer who is diligent, tem- 
perate, frugal, and honest, is an incipient capital- 
ist ; he belongs to the class of men which furnishes 
the millionaires. Those who regard industry 
and frugality as great sacrifices and spend all 
they might save on drink and other extravagance 
belong to the class which furnishes the paupers. 

The capitalist upstart usually begins by work- 
ing for hire; he is diligent, frugal, able, and 
honest ; he makes himself more and more useful 
to his employer, gets higher and higher wages, 
until he is taken in as a partner or starts in busi- 
ness for himself. Numerous instances might be 
cited from the most eminent concerns in 
Chicago, whose members began as hired men. 
When a successful house ceases to be composed of 
upstarts, it becomes infected by dry rot and pros- 
perity forsakes it. 

When the upstart has proved himself to be 
trustworthy he can command loan capital or the 
savings of others. Having ability, honesty, fru- 
gality, industry, and fortitude, others are ready 
to bet that he will pay his debts ; although calam- 
ity may possibly overtake him, they believe he 
will do to trust. About his premises there is 
vigilance and efficiency; his methods, imple- 
ments, materials, and employes are of the best ; 
he is a good buyer and a good seller, or employs 
those who are ; his outlays are a minimum, his 
product a maximum and suited to the market. 
Loiterers, incapables, and high livers can not with- 



Stand his competition ; it is ruinous to them ; he 
supplies consumers with what they want at too 
cheap a rate. 

When the upstart has achieved great success 
everybody wants to share profits with him, and 
think that he ought to pay the taxes, support the 
poor, and cry over the prodigal, the loafer, and 
the tramp. Social agitators denounce him, urge 
his employes to strike for higher wages, and are 
ready to confiscate his property or to destroy it, 
and to do him personal violence. He has bought 
and sold at the market price and become rich, 
while others who did the same have consumed or 
lost their capital and become poor, or never 
acquired any and remained poor. He has prac- 
ticed legerdemain ; he possesses the art of extract- 
ing surplus value out of the labor of his hired 
men, while others, who paid the same wages, 
possess the art of having surplus value extracted 
out of them ; others, the art of not extracting 
any surplus value out of their own labor, or of 
spending it if they do ; and still others of doing 
no more labor than necessity compels them to do. 

The rich Rockefeller, in 1864, was working for 
hire as a clerk ; his partner, Andrews, was, or had 
been, a hired laborer in an oil refinery, when by 
some mental labor he devised a method whereby 
more kerosene could be obtained from petroleum 
than by any method then known. With the aid 
of borrowed capital his process was tried and 
proved to be a success. At that time the residue 




was waste or used for fuel, but afterward was con- 
verted into paraf&ne, lubricating oil, aniline dyes, 
etc. Tanks were constructed to save the petro- 
leum from running to waste ; also pipe lines to 
convey it from the well to the seaboard, the lakes, 
and elsewhere ; also numerous other economies 
were used in the production, transportation, and 
sale of the crude oil and its products, whereby 
the quantity of labor per unit of product has been 
reduced to a minimum, with the result that kero- 
sene is sold at retail for a few cents a gallon. If 
the members of the Standard Oil Company have 
extracted their vast wealth out of their hired 
men, each of them must have been a spouting 
well of richness. 

But in Texas, where none of the members of 
the company reside or carry on business, it is 
thought that this great wealth has been extracted 
out of the consumer, and they have been indicted 
there for feloniously conspiring to keep up the 
price of kerosene above what it might be sold for. 
The Texas consumer considers himself defrauded, 
although he prefers kerosene at its price to cot- 
ton-seed oil, lard oil, whale oil, tallow, or any 
other illuminant, and can buy petroleum at its 
market price and make his own kerosene, naphtha, 
benzine, gasoline, paraffine, lubricating oil, ani- 
line dyes, etc., if he chooses to do so. Texas 
being an agricultural State, the provisions of its 
anti-trust law do not apply to the producers of 
agricultural products and live stock. Any com- 



bination or conspiracy among them and other 
like producers elsewhere which would raise the 
price of cotton, cotton seed, or steers would be 
hailed there with delight. 

The possession of property implies that its 
owner has practiced frugality, for those who con- 
sume or squander all they acquire can not remain 
or become a capitalist. Any one who makes 
savings and hides them away gets no profit out of 
them ; the reward for his abstinence is the pro- 
vision which he has made against sickness, old 
age, or any future need. Capital, which in fact 
is money, or money's worth, has the same pur- 
chasing power and will draw the same rate of 
interest, whether its acquisition caused or the 
abstinence from consuming it causes pleasure or 
pain. Hired labor gets the same wages whether 
the laborer who performs it loves labor or hates 
it. If any one is so constituted that industry and 
frugality, or either of them, cause him great pain, 
perhaps those who practice those virtues as their 
free choice and delight ought to share with him. 

An owner of capital can demand a profit for its 
use. As an excuse for doing so, he might say 
that a loan involves trouble in the lending and 
securing its return ; if it be of a specific article, 
there is also its injury from wear, misuse, and 
accident ; if the thing is consumable, there is also 
the trouble of identifying the thing returned as 
an equivalent to the thing lent ; if money is lent, 
that offered in payment may consist of light. 



debased, or counterfeit coin or depreciated 
paper money ; a loan without interest is a mere 

Although the lender demands interest, why 
does the borrower agree to pay it ? Some who 
borrow can not repay the loan without interest • 
their proper vocation is to work for wages, or at 
least not to borrow. Many farmers mortgage 
their farms and with the assistance of their fam- 
ilies spend and fool away the money, and thus 
often lose their farms. But those who possess 
the requisite abilities make a profit out of bor. 
rowed money in excess of interest, some of them 
great sums. Profit is made in trade, by buying 
at one price and selling for more, or by selling 
short and afterward buying back at a lower 
pnce. The market price of commodities, includ- 
ing all kinds of negotiable securities, continually 
vary. A producer is a buyer of materials, instru- 
ments, etc., and a seller of products. The price of 
cotton varies much during a year ; its price was a 
third higher, on an average, in 1895 than in 1894. 
Profit IS made by paying interest for money on 
call ; banks do so continually. Present purchas- 
ing power is of greater value than the same 
amount certain to accrue in the future to any one 
who can make a profit by means of it in the mean- 
time ; also, to any one who is without the means 
to satisfy his present needs. A nation engaged or 
about to engage in war, or has suffered defeat 
may be included in this category. 



Money tied up in a bag will not beget money ; 
neither will wheat in a granary beget wheat, 
although it may become wormy, grow musty, 
or sprout. Locomotives, cars, wagons, ships, and 
other useful instruments will beget nothing except 
loss if allowed to stand idle. Money is a pro- 
ductive instrument; if employed it can beget 
either a profit or a loss ; it can enable its owner 
or borrower to carry coals to Newcastle, to sow 
seed in barren ground, or to produce something 
which is not wanted or not in demand at an 
adequate price. No useful instrument is pro- 
ductive of profit unless it is intelligently employed. 
Ships, etc., can convey goods from where they are 
a superfluity to a place where they are wanted. 
At Venice, when Antonio's argosies ** richly laden 
came to harbor suddenly," there were more ducats 
in the cargoes than he had expended on them. 
The three thousand ducats enabled Bassanio to 
win the rich heiress, and were more productive 
to him than ewes and rams. 

A hired man said that he could not see why 
anybody should make a profit out of the product 
of his labor. In the first place, such product was 
not of his designing but of his employer, and was 
worthless if not wanted, and if wanted had the 
greatest value where it was wanted the most, 
which might be at Venice, the East Indies, or 
elsewhere. Who was to find the best customer 
and sell it to him ? It was good sense for the 
workman to stick to his job, take his reward in 





money, and leave to his employer the risk of 
profit or loss and of finding the best customer for 
the product, the nature of which was determined 
not by the workman, but by his employer. 

Great efforts have been made to befog the sub- 
ject of interest. For example, this language is 
quoted : It is often said that capital is productive, 
and so calls for interest. Obviously capital is 
productive in the sense that production is greater 
with than without capital ; but does that explain 
interest ^ Why should any one care for a plow, 
which one can not eat, wear, or play with ? The 
reason is clear : because it produces things which 
we can eat, etc. Their value gives value to the 
plow. Thus we have the principle that the value 
of capital is a reflected value ; that is, the value of 
the means of production is derived from the prod- 
uct. But how much value will the plow have? 
Suppose it lasts ten years and with it are produced 
crops worth $i,ooo. Paying all the rent, wages, 
etc.. $50 is left at the end of ten years. Now 
men learn to foretell these results very closely, 
and from their estimate of what a machine will 
produce they determine its value. If it will pro- 
duce a great deal they value it highly ; if only a 
little, they will only give a little for it, no matter 
how much or little it cost to produce it. So it 
does not do to say that capital draws interest 
because it produces more than its own value, for, 
as we have seen, it is valued according to what it 
produces. ("Outlines of Economics," Ely, p. 212.) 

The market value of the plow is no more than 
sufficient to induce its maker, competing with other 
plowmakers, to produce it for sale. Any more 
plows than he can use himself are worthless to 
him except for the purpose of sale. A plow would 
have no other than its market value to a person 
who had no use for it except to sell, nor to 
any one who had no other means to satisfy his 
immediate and pressing needs. The value of the 
plow is fixed by its cost of production as above. 
Although a farmer had means sufficient to satisfy 
his wants until the productive power of the plow 
became available, he ought not to borrow its price, 
with or without interest, unless its product 
in ten years, or during the life of the plow, 
would more than repay the debt. No one ought 
to buy the plow at any price unless he could 

gain by it. 

An argument against interest might be made 
as follows : Obviously a capitalist has a surplus 
in excess of his current needs ; therefore the same 
amount in the future is worth more to him than 
his present surplus. A loan of it on good secur- 
ity, without interest, would secure him from loss 
by accident, theft, robbery, and deterioration from 
lapse of time, and relieve him from all expense, 
care, and trouble of keeping it. In fact he would 
gain or save so much by lending his surplus in 
that way until it was needed to satisfy his wants, 
that he ought to pay the borrower for his trouble. 
Money is often deposited in bank without 




interest; also put with other valuables in a 
safety deposit vault and money paid for their 
safe keeping. 


It is said (J. S. Mill, B. 3, Chap. 3): When the 
production of a commodity is the effect of labor 
and expenditure there is a minimum value which 
is the essential condition of its being permanently 
produced, i. e., its market value must be sufficient 
to repay the cost of production, and to afford 
besides the ordinary expectations of profit. The 
cost of production, together with the ordinary 
profit, may therefore be called the necessary price, 
or value, of all things made by labor and capital ; 
that when the commodity can be made by labor 
and capital in indefinite quantity, this necessary 
value is also the maximum which its producers 
can expect, if competition is free and active, for a 
higher rate of profit would stimulate its produc- 
tion, capital would rush in to share in this extra 
gain, and by increasing the supply of the article 
reduce its value ; that as a general rule things tend 
to exchange for one another at such values as 
will enable each producer to be repaid the cost 
of production with the ordinary profit ; in other 
words, such as will give to all producers the same 
rate of profit on their outlay. But in order that 
the profit maybe equal where the outlay— that is, 
the cost of production— is equal, things must on 
the average exchange for each other in the ratio 



of the cost of their production ; things of which 
the cost of production is the same must be of the 
same value. For only thus will an equal outlay 
yield an equal return. 

According to this statement, in Eq. (i), c=a 
unit of outlay; x.c=total outlay per unit of com- 
modity "a"; y.c=total outlay per unit of com- 
modity "b." Also, 

r=the ordinary rate of profit on outlay, 

r.x.c=profit per unit of '* a," 

r.y.c= " " "b," 

x.c (i4-r)=necessary value of **a*' per unit, 

y.c(i+r)= " '• "b" - " 

If m units of "a" have the same market value 
as n units of **b," then, at their " natural " value, 

m.x.c (i+r)=n.y.c (i+r). (6) 

Things of which the cost of production is the 
same must be of the same value, and all producers 
make the same rate of profit on their outlay, to 
wit, the ordinary profit. 

But the author cited also says (J. S. Mill, B. 3, 
Chap. 6): " Every commodity of which the sup- 
ply can be indefinitely increased by labor and 
capital, exchanges for other things proportionally 
to the cost necessary for producing and bringing 
to market the most costly portion of the supply 
required. The natural value is synonymous with 
the cost value, and the cost value of a thing means 
the cost value of the most costly portion of it." 

Therefore the producers of the less costly por- 
tions of the supply required make a greater rate 



of profit on their outlay than^ those who produce 
the most costly portion, and hence, ♦* as a general 
rule things do not even tend to exchange for each 
other at such values as will give to all producers 
the same rate of profit on their outlay." And in 
order that the producers of the most costly por- 
tions of the supply required of various commod- 
ities may be satisfied with the same rate of profit 
on their outlay, the production of them must be 
equally attractive; it being said by the author 
cited that the production of gunpowder would 
require a greater rate of profit than things which 
were not explosive. 

The producers of the most costly portions of 
the supply required, and who stand at or just 
within the margin of production, are not in a very 
good condition to rush into some other business, 
" and by increasing its supply reduce its value." 

The proportionality of value to cost above 
mentioned results in Eq. (6). For if m units of 
commodity "a" exchange for n units of commod- 
ity "b," then one unit of "a" buys ^ units of '*b," 
and ^ expresses the value of "a" relative to **b," 
the value of which relative to itself is unity. 
Hence, if the market value of "a" and '^b" is 
natural as between them, then, according to the 
author cited, 

5: I ::x.c(i+r):y.c(i+r) (7) 

r being the rate of profit made by all their 

producers, according to one of his statements, or 



the rate of profit made by the producers of the 
most costly portion of the supply required of 
each, according to his other statement. 

A treatise on economics, not purely specula- 
tive, ought to furnish a list or table of the neces- 
sary value (or price) of each commodity. The 
rising generation, having learned (J. S. Mill, B. 2, 
Chap. 1 5) that after making good the outlay there 
commonly remains a surplus or profit, the net 
income from the capital invested, would all be 
anxious to know the amount of the "ordinary 
profit " which he could spend on necessaries or 
pleasures, or by saving add to his wealth. Public 
officers and others who let contracts ought to 
know what is the necessary value of the thing or 
things contracted for ; so, also, those who bid for 
the job, or propose to produce anything for sale 
or exchange. Unless the " ordinary profit " is 
generally known, capital and competitors might 
rush in for an extra profit, when they ought to 
stay out and avoid a loss. 

The list would, however, be limited to those 
things which are uniform in kind and quantity, 
and which are continuously produced for the pur- 
pose of sale or exchange, for only such would have 
a quotable market value. 

All products of a joint cost would be excluded 
(J. S. Mill, B. 3, Chap. 16), for the cost of each 
would be unknown; as, for example, coke, coal 
gas, coal tar ; chickens and eggs ; calves and dairy 
produce ; beef, hides, tallow, horns, hair, bones ; 





mutton, mutton tallow, wool, sheepskins ; cotton, 
cotton seed ; g^rain and straw— all joint products 
of the same process of reduction, distillation, man- 
ufacture, the same course of husbandry, or of any 
occupation or industry whose reward is derived 
from more than one specific commodity. A 
maker of cotton stockings does not make them all 
of the same quality of cotton, nor all equally fine, 
nor all of the same size and pattern. He endeav- 
ors to conform his product to the current demand 
for it ; and if some kinds and styles prove to be in 
such demand as to more than compensate for the 
loss on those which are not in adequate demand, 
he feels encouraged to continue the business. A 
farmer produces various things, as grain, hay, 
roots, live stock, etc.; he will sow grain partly for 
the straw, and partly in order to seed down the 
land to grass ; rotation of crops is good husbandry. 
A shoemaker uses various kinds and qualities of 
leather and other materials, and makes shoes of 
various sizes, kinds, and qualities. A producer 
follows an occupation, very few of which are such 
that the product is some one thing of a uniform 
kind and quality. And it is the total result* of his 
operations during a period of time sufficient, in 
his opinion, to determine the question which 
induces him to continue or to abandon his occu- 
pation. It is the total profit, actual or expected, 
\yhich determines for each competitor the direc- 
tion of his competition. Large profits are often 
made by taking a very small rate of profit per 

unit of outlay, as by turning over capital often 
during the period for which profit is computed, 
or, as it is said, by quick returns and small 

The author cited also says (J. S. Mill, B. 3, 
Chap. 3): **Adam Smith and Ricardo have called 
that value of a thing which is proportional to the 
cost of its production its natural value (or natural 
price). They meant by this the point about 
which the value oscillates, and to which it always 
tends to return ; the center value toward which, 
as Adam Smith expressed it, the market value of 
a thing is constantly gravitating ; and any devi- 
ation from which is but a temporary irregularity, 
which, the moment it exists, sets forces in motion 
tending to correct it. On an average of years, 
sufficient to enable the oscillations on one side of 
the central line to be compensated by those on 
the other, the market value agrees with the 
natural value. The sea everywhere tends to a 
level, but it never is at an exact level ; its surface 
is always ruffled by waves, and often agitated by 
storms. It is enough that no point, at least in the 
open sea, is permanently higher than another. 
Each place is alternately elevated and depressed, 
but the ocean preserves its level." 

Instead of preserving its level the ocean con- 
tinues to oscillate. The earth's gravity tends one 
way ; its centrifugal force and the attraction of 
the sun and moon another. Heat and cold cause 
vast currents to flow to and from the poles, which 




are turned aside by obstructions and the forces 
which operate upon the water; the pressure of 
the air does not remain uniform everywhere, and 
the shifting winds not only ruffle the surface of 
the water, but disturb its level. It would have 
been more accurate to say that the oscillations of 
the water occur within certain variable limits at 
which the various forces counteract each other. 
In order that the ocean may be level, no part 
or parts of it must be higher than others ; so also 
as to natural value, which, in order to be natural, 
must be so as to all commodities at the same 

Although the oscillations in market value may 
compensate for one another on an average of 
years, as above stated, that fact does not help 
those who are engaged in or who begin business 
when the oscillation is going the wrong way for 
them. The '* ordinary profit " on the most costly 
portion of the supply required of the various 
commodities is not so great as to enable them to 
keep their heads above water until it sets the 
other way. During the lapse of years many pro- 
ducers of the most and of the less costly parts of 
the several supplies will die, alter their business, 
or step out of the competition, and newcomers 
will take part in it ; the relative demand will vary, 
and also the conditions of production. A compen' 
sation which occurs only in an average of years 
can help those only who are long-lived and long- 
winded. In relative value, while one or more 



things are going down, another or others are 
going up ; hence it would add greatly to the prac- 
tical value of this central line if it were located 
so that everyone, and especially every new begin- 
ner, might enter into the swim at the right place 
or at the right time. 

The theory of natural value, above considered, 
ignores human inequality and assumes that all 
products are uniform in quality. All the hunters, 
fishermen, and other producers are all exactly 
alike ; so also are all the deer, beaver, fish, and other 
products. With equal facilities all producers can 
produce the same thing at the same cost and make 
the same profit. The theory does not apply to a 
state of industrial freedom and of free competi- 
tion among unequals. 

It is only in socialism that every person will 
produce and procure the same thing at the same 
cost. In that Utopia all men will be considered 
to be exactly alike ; no kind of labor will be con- 
sidered more arduous or disagreeable to one per- 
son than to another. Every unit of labor time 
will draw from the common stock the same quan- 
tity of commodity, which will be uniform in 
quality, or so considered, and none of it be stale, 
musty, mildewed, worm-eaten, inferior, or unequal 
in any respect. All the beef will be from cattle 
that are all equally young, healthy, and fat, and be 
all tenderloin and fine cuts ; all the honey in the 
hive will be of new white comb, and none of it 
will be old, webbed over by the moth, or partly 







occupied by young bees. Everjlhing will be de- 
livered over to consumers at the same price per 
unit of quantity, and none of it offered to the 
highest bidder and sold according to its quality. 

It has been said (Caimes) that the normal or 
natural value of a commodity is that which will 
suffice, and no more than suffice, to yield its pro- 
ducers what is considered to be the average or 
usual remuneration for such sacrifices as they 
undergo. But, under free competition, every 
competitor does the considering for himself ; and 
the value of his product for a period by him 
deemed sufficient for the purpose must yield him 
at least as good a reward as, in his opinion, he can 
otherwise obtain, or else he will change his occu- 
pation, whether his remuneration is above or be- 
low the average. 

When ever}' competitor has no cause to change 
his occupation, it may be said that competition 
has, at least theoretically, ceased to operate and 
the relative value of commodities are in equi-' 
librium, although all producers were making a 
different rate of profit on their outlay. 



The money vaitie of a thing is its relative value 
as compared with money, and in amount is 
expressed by the number of units contained in 



the sum of money which it is deemed worth or 
for which it is sold. The exchange value of the 
money unit is the unit of money value. All of 
the units being alike, are of the same value ; for 
if not alike they can not be added together into 
an aggregate ; but being so, there are as many 
units of money value in a sum of money as there 
are money units. Thereupon, sums of money 
and amounts of money value can be stated in 
figures and become amenable to the rules of arith- 
metic. Accounts can be kept in terms of the 
money unit ; all taxes, dues, debts, damages, cost, 
and value can be so stated. Market prices of all 
commodities, being of the same nature, can be 
compared with each other, and the relative value 
of commodities thereby ascertained ; in fact, their 
relative market value is not otherwise ascer- 

Barter is the direct exchange of commodities 
between their respective owners. In barter each 
party must have something which the other wants 
more than what he then has, and the commodities 
must be divisible so as to form a basis of 
exchange which will be satisfactory to both par- 
ties. But ordinary commodities are bulky, more 
or less perishable, and usually suitable only for 
some particular purpose, are consumed by their 
use, and have no general purchasing power. The 
number of ratios arising from the direct exchange 
of loo commodities is 4,950 ; of 200 commodities 
is 19,900, supposing each of them to be exchanged 




for each of the others and always at the same 
ratio. But they would not always exchange at 
the same ratio, and many of them would rarely, 
if ever, directly exchange for each other, as 
feathers for railroad iron, or axle grease for mil- 
linery. Value would not be easy to state in 
accounts ; also debts and credits, if they existed. 
A theory of exchange value founded on barter, 
which assumes that every commodity is uniform 
in quality, durable, and has a general purchasing 
power, is based on a fiction. Where division of 
labor exists, and every producer relies upon his 
product as a means to acquire from others many 
of those things which he needs, no one could 
obtain them by barter, in kind, quantity, when 
wanted, and on terms which would enable him to 
pursue his occupation successfully; too much 
of his time would be occupied in truck and trade ; 
those who want his product are seldom those who 
can supply him with what he requires. A baker 
needs from time to time a certain quantity of 
flour of a suitable quality ; those who want some 
bread at stated intervals can not supply him with 
flour. A miller wants grain, but the farmer wants 
other things besides bread or flour for his surplus 
crop. What everyone wants in exchange for his 
superfluities is general purchasing power in a 
concrete, durable, portable, and divisible form, 
which he can from time to time, and at any time, 
use to acquire by purchase what ever he may need 
or desire ; he also wants to sell at the highest 




price obtainable and buy at the lowest ; as a seller 
he wants competition among buyers ; and, as a 
buyer, competition among sellers. In fact, the 
relative value of commodities is properly fixed by 
competition in their sale as well as in their 

Money enables everyone to sell his superflui- 
ties to those who want them the most, and to 
acquire his necessaries from those who want them 
the least ; to do this, he sells to one person or set 
of persons, and buys of another. 

During the fiscal year ending June 30, 1 889, 
about one-half, in money value, of the exports 
from this country went to Great Britain, while 
only about one-quarter of the imports came from 
there. The exports to and imports from the fol- 
lowing countries were, in money value, as fol- 




Philippine Islands 


$ 9.35i»o8i 






The exports were sold where they would bring 
the best price, and the imports were bought 
where they could be obtained at the lowest price. 
How this could be done by way of barter, and how 
international balances could be stated and paid by 
the use of that method of exchange, is hardly 
worth while to consider. Even if the money of a 



country consists of an irredeemable and fluctuat- 
ing paper currency, trade is not carried on with it 
by way of barter. 

An exporter is one person and an importer is 
usually another ; the former may sell on one side 
of the globe, and the latter buy on the opposite 
side; each of them buys and sells for money, 
unless in dealing with savages. A merchant con- 
tinually buys of one set of persons and sells to 
another. A producer buys his materials and 
implements from sundry persons and sells his 
product to others. A farmer sells his surplus 
grain, live stock, and other produce to various 
persons, buys his dry goods, groceries, and other 
necessaries of others, pays his taxes, his doctor, 
lawyer, clerg)anan, the schoolmaster, etc., and, if 
thrifty, has some money left, which he may not 
use or spend for years. He would be no wiser 
if he were informed that his transactions really 
amounted to barter. A person can sell more 
goods, in value, than he buys ; but he can not 
continue to buy more than his means will pur- 
chase. The people of Great Britain, having large 
investments in their colonies, India, and else- 
where, are enabled to buy continually more than 
they sell. The annual income from British capi- 
tal invested abroad is said to exceed eighty-five 
millions of pounds sterling ('*The Growth of Capi- 
tal," Giffen). 

In that rude state of society to which barter 
properly belongs, some commodity was usually 

:' I 



found to have a more general purchasing power 
than any other, whereupon it came to be used as 
a crude and imperfect money. Many things have 
been so used at different times and places, among 
others, cattle, sheep, grain, skins, and furs. But 
cattle and sheep may be large or small, young or 
old, fat or lean, sound or unsound ; grain, skins, 
and furs also vary in quality. Money ought not 
to require to be fed, watered, and perhaps doctored, 
or be liable to die, decay, become musty, or in- 
fected with weevil, moth, and vermin. No com- 
modity is suitable for the purpose unless it is 
uniform in quality, durable, portable, divisible 
into parts without injury, limited in quantity and 
always in general demand. 

When the metals became known, they were used 
for the purpose, and finally the precious metals 
were preferred to anything else. After they be- 
came known and available for the purpose, the 
owners of superfluous commodities, which are 
usually bulky, perishable, expensive to keep and 
carry, preferred to sell hem for precious metal, 
feeling sure that it would remain sound and in 
general demand until they severally saw fit to dis- 
pose of it from time to time as their needs might 
require. By so doing they acquired and still 
acquire a store of wealth in a concentrated, dura- 
ble, and divisible form, with a great saving in 
value and in cost to them. Such money has a 
general purchasing power, present and prospec- 
tive. The money of international trade is prec- 



iotis metal treated as bullion, estimated according 
to its weight and fineness. 

Coinage fits the metal for use as money, and is 
done by the State according to a money system 
with which its people are familiar. The metal is 
reduced to a uniform fineness called standard, as, 
for example, nine-tenths pure metal and one-tenth 
of a prescribed alloy. This obviates all questions 
as to its fineness, and makes equal quantities of it 
by weight of equal value. A fixed quantity of it 
by weight is taken as the money unit, to which a 
name is given, as a dollar, a sovereign, a mark, a 
franc, etc. Thereupon the standard bullion is 
coined into multiples and submultiples of the 
money unit, each of a weight proportionate to its 
nominal value in the money system to which it 
belongs. This being done, any sum of money 
stated in terms of such unit contains a quantity 
of the metal in proportion to the number of 
money units contained in such sum, and with the 
requisite number of pieces, or coins, any such 
sum can be counted out in them without any divi 
sion of metal or further ascertainment of its 
weight and fineness, assuming them to be gen- 
uine, undebased, and unimpaired by use or fraud. 
If coinage is free and gratuiotus, the coins, exe- 
cuted as above, and therefore called standard 
coins, are merely the standard metal put into a 
form most suitable and convenient for use as 
money, and their exchange value conforms to that 
of the same weight of standard bullion. 



Each of the precious metals is uniform in qual- 
ity and makes a homogeneous currency ; each of 
its units are alike and of the same value, and 
therefore a sum of money can be stated in terms 
of the money unit. But bimetallism, or the free 
and gratuitous coinage of both metals at a fixed 
ratio between them, to wit, that the silver coins, per 
money unit, shall be in pure silver a specific num- 
ber of times heavier than the gold coins are in pure 
gold, fails to make a homogeneous currency ; for 
the relative market value of the two metals will 
not remain the same as their coinage ratio, and 
the difference in bulk and weight of the two kinds 
of coin prevent them from being equally desirable 
in all sums. 

If a money coined out of either metal remains 
unaltered in fineness and its unit unaltered in 
weight, every person who buys or sells, borrows 
or lends, in terms of such unit, knows what is to 
be paid or received just the same as in a contract 
to deliver or receive a specific amount of any 
other commodity of a uniform quality. A super- 
structure of credit can be erected upon such a 
solid foundation, for everyone knows what is 
meant by a sum of money stated in money units. 
What the exchange value, or, in other words, the 
general purchasing power, of a sum of money, or 
of a certain quantity of any other commodity, 
may be in the future, no one can foretell ; as to 
that, everyone must take the risk. Prices and the 
relative value of commodities can not be fixed by 



law so as to suit both the buyer and the seller, 
the producer and the consumer. The demand rela- 
tive to the supply of anything does not remain 
constant, nor does its cost of production or acqui- 
sition. But with a metallic currency as above 
supposed, the money and relative value of com- 
modities would conform to the varying relative 
demand for them at the varying relative cost of 
their production. 

The relative value of the two metals has varied 
one-half since 1873, to wit : An ounce of fine gold 
had the same exchange value as 15.92 ounces of 
fine silver in 1873, and of about double that quan- 
tity in 1 897. 

The annual supply of both metals has been 
large and increasing for a number of years (Re- 
port of the Director of the Mint for 1896, p. 232)^ 
which proves that each of them is produced at a 
profit sufficient to induce and encourage its pro- 

The change in their relative value has been 
quite gradual since 1873, and affords no sufficient 
reason why a country which then had, and still 
has, either a gold or a silver standard should now 
alter it; for the relative value of commodities 
under either standard conforms to the variation 
in their relative cost of production or acquisition. 
Gold is greatly superior to silver as a metal, and 
has been preferred more and more for use as 
money ever since 1873. Silver has also been 
greatly supplanted in the industrial arts by elec- 



troplate, German silver, and other alloys of the 
baser metals. 

If bimetallism were beneficial its adoption at 
the existing commercial ratio would cause the 
least disturbance to prices and values. The adop- 
tion of the free coinage of gold at the ratio of 1 5 J^ 
or 16 to I by a silver standard country would be 
nugatory ; its adoption by a gold standard coun- 
try would debase its unit of cost and value to the 
bullion value of the silver contained in its money 
unit. But its general adoption by all or the princi- 
pal gold standard countries, if made effectual, it is 
insisted, would cause the relative value of the two 
metals to conform to their coinage ratio by mak- 
ing the relative demand for them conform to that 
ratio. The scheme has for its object to raise the 
exchange value of silver and depress that of gold ; 
to stimulate the production of the former and dis- 
courage the production of the latter. The silver 
producers are its chief advocates, aided and 
assisted by debtors and speculators in gold stand- 
ard countries who expect to gain by an upheaval 
and alteration in values, caused by making money 
more abundant and of less value per unit. Some 
countries which hold a large stock of silver, coined 
formerly at the ratio of 155^ or 16 to i, being 
somewhat in the condition of the fox in the fable 
who had lost his tail, are inclined to regard the 
above scheme with an eye of favor. 

Metallic Tokens. Some of the coins, as for the 
fractional parts of the money unit, if made of the 





Standard metal, would be too small for convenient 
use, and are usually made of baser metal, with a 
nominal or money value assigned to them greater 
than their metallic value. Such coins are neces- 
sary in retail trade and to pay the fractional parts 
of the money unit. A newspaper could not be 
bought for a cent if there were no cents. These 
coins are called tokens. Their coinage is limited 
to the amount required, is done on Government 
account, and their legal tender power is limited 
to a small sum in any one payment. Such coins 
are necessary for change, but they become a 
nuisance when they are in excess of the amount 
required, wherefore they are made redeemable 
at the Treasury, and when wanted are obtainable 
there for other money. 

Paper Tokens, Paper money is token or repre- 
sentative money, and properly consists of prom- 
ises to pay money to the bearer on demand, 
executed on paper in such form and in such 
amounts as to be suitable for general circulation 
as a substitute or token for the money thereby 
promised to be paid. This token takes the 
place of the coin which it represents, and thereby 
reduces to the extent of its nominal value the 
amount of coin which would otherwise be current. 

The legitimate demand for paper money is not 
a demand for more money, but for that kind 
because of its superiority over coin for common 
use in active circulation. Standard coin is sub- 
ject to the objections of bulk, weight, and wear. 



Paper money is light, easy to count, carry and 
conceal about the person, and always requires for 
its redemption coin of full weight. 

The power to coin money, to alter, debase, and 
dilute it, is an attribute of sovereignty, to be exer- 
cised solely for the public good, and not for pri- 
vate gain. Hence the State ought to furnish all 
the money. Any gain, saving, or profit arising 
from the manufacture and issue of metallic and 
paper tokens belongs exclusively to the people as 
represented by the State. No person or corpo- 
ration should be authorized or permitted to make 
and put in circulation any kind of money. Banks of 
issue and bogus mints ought to be alike prohibited. 

The fineness of the standard metal, the weight 
of the standard coins, and even of the metallic 
tokens, are fixed with great precision, and abun- 
dant provision is made for the execution of the 
coinage conformable thereto ; also, the coinage of 
the standard metal is made free and gratuitous in 
order that the standard coins shall have the same 
exchange value, per unit of weight, as the 
uncoined metal. Thereupon the money and its 
value are as stable and as elastic as the metal and 
its value, and all attempts to make the former 
more so violate the theory of free coinage and 

nullify its object. 

Metallic and paper tokens issued solely for the 
purpose of obviating the practical objections to 
the exclusive use of the standard metal, and made 
always redeemable at the National Treasury and 




1 ( 


its offices, would not alter the nature of the cur- 
rency, and would leave its value per unit, the 
same as if it were exclusively of standard coin. 

The Currency Volume, The amount of money 
needed for active circulation depends upon the 
quantity of business to be transacted and the 
manner of doing it. A commercial community 
would require more money for this purpose, per 
unit of population, than if it were agricultural. 
Also, when transactions of any magnitude are 
chiefly effected by checks and other ordinary 
instruments of credit, the quantity of money 
required is much less than if it were counted out, 
examined, and paid over in every transaction. 

But money is not wanted merely for immediate 
but also for future use, more or less remote. The 
money held in reserve for future use is as much 
a part of the currency as that which is paid away 
as soon as it is received. For savings, reserves 
and future use, gold coin is preferred. Such 
money encourages frugality and promotes the 
growth of capital; war, civil commotion, or finan 
cial panic does not destroy its value. The finan- 
cial condition of a country is strong when it is 
saturated with specie. Then the exportation of a 
few millions would excite no fear about the stability 
of the currency, such as continually arises when it 
consists chiefly of paper money and other tokens. 
The people of France paid a thousand millions of 
dollars to Germany, when overrun by its armies, 
without a financial collapse. 



The nominal amount of a metallic currency 
also depends on the kind of metal used and the 
weight of the money unit. For example, if the 
weight of the money unit were reduced one-half, 
the nominal amount of the currency would be 

A metallic currency whose standard coin and 
money unit remain unaltered in weight and fine- 
ness, is automatic in its volume. As prices rise 
the exchange value of money falls, and exporta- 
tion of it occurs when it can be done at a profit. 
As prices fall, the exchange value of money rises, 
and coin previously exported is imported, or bul- 
lion is procured and coined when it can be done 
at a profit. Precious metal, in coin or bullion, 
like any other commodity, is exported when in 
superfluity and procured in the opposite case. 

If, instead of allowing a metallic currency to 
correct itself automatically, money is kept too 
abundant by issues of paper money , the final result 
is the total expulsion of the standard coin ; after 
which the paper money, being non-exportable and 
irredeemable, declines in value as its quantity 
increases, until its value becomes nominal, as 
Continental money, assignats. Confederate money. 

A gold currency may also be debased by the 
free and gratuitous coinage of silver at a nominal 
or legal-tender value in excess of its bullion 
value, or gold price. In such case, silver bullion 
can be coined at a profit until the abundance of 
money and the consequen rise in prices cause 



the silver coins to fall to their bullion value 
Pnor to which time the gold coins, being worth 
more as bullion than their nominal or money 
value, are exported or otherwise disappear from 
circulation. After the silver coins fall to their 
value for export as bullion, the currency could not 
be further inflated except by debasing them, or by 
issues of paper money as above stated. 

According to the report of the Director of the 
Mint for 1896, p. 226, the gold produced in the 
'United States previous to 1896 amounted, in coin- 
ing value, to $2,059,946,769 ; to which add his esti- 
mate for 1896, to wit, $51,500,000, and the total 
product up to 1897 was $2,111,446,769. Also, p. 
281, the total gold coinage at the mints of the 
United States up to July i, 1896, was $1,814,692,. 
253, which is greater than the total currency of 
the United States at that date, which, as given by 
the Treasury Department, was $1,776,817,488 of 
which only $567,931,823 was in gold coin, the 
residue consisting of various kinds of paper 
money and of silver tokens. The difference 
between the product and the coinage may be 
taken as equal to the quantity of gold used in 
the industrial arts, supposing all old material to 
be reemployed for that purpose. It is obvious, 
therefore, that the entire currency might have 
been in gold coin, without importing any of that 
metal. In such case, the preference for paper 
money over coin for use in active circulation 
could have been satisfied by the issue from the 



Treasury of gold certificates for a like amount in 
gold coin deposited and there held for their 
redemption. Thereupon the currency and its 
proportionate parts, as between coin and paper, 
would have been automatic. The annual domes- 
tic product, which is large and increasing, 
to wit, $46,610,000 in 1895, and $51,500,000 in 
1896, after deducting the quantity of new gold 
required for use in the industrial arts, would 
have supplied any future increase in the cur- 
rency demanded by an increase in the population 
or other cause. 

But the currency of the United States consists 
of about one-third in standard gold coin and two- 
thirds in paper and other tokens. In addition to 
all the foreign gold imported, there was exported 
previous to July i, 1896, about $1,200,000,000 of 
the domestic product. The net export of the 
United States gold coin from January i, 1870, to 
November i, 1896, was $576,494,360 (Mint report 
for 1896, p. 32). To this add the net export of 
foreign gold coin and of domestic and foreign 
bullion. The net export of gold for the fiscal 
year ending June 30, 1896, was $78,904,612; for 
the fiscal year ending June 30, 1895, was $30,117,- 
376 (lb.). Gold is exported persistently as above, 
because the volume of the currency has been in 
time past, and still is, kept stuffed with paper and 
other tokens. " When, during a period of appre- 
hension, caused by a large efflux of gold from 

England to America, views were expressed in 




Manchester and Liverpool that a much larger 
issue of bank notes ought to be permitted, this 
opinion tended manifestly to the depreciation of 
our currency." (Goshen's " Foreign Exchanges," 
p. 74-) 

If the free coinage of silver were adopted at 
the ratio of i6 to i, which is about twice its com- 
mercial value, all of the gold coin, and gold not 
used in the industrial arts, would be exported, 
except what might be hoarded. And thereupon 
the currency would become one consisting of sil- 
ver dollars and paper tokens redeemable in silver 
dollars. Only about $60,000,000 of silver dollars 
is all that can be kept in circulation in specie ; 
any excess over this amount is returned to the 
Treasury' and silver certificates taken out for it. 
After such a currency was inflated to the export- 
ing point for the silver coin, and prices had 
become adjusted to the silver dollar as the money 
unit, and debts had been incurred on that basis, 
the chronic complaint about the scarcity of money 
would be heard, unless the exchange value of sil- 
ver continued to decline, prices to rise, and debts 
to dwindle. 

The State has power to alter the money and 
its unit, so that a sum of money payable, e. g., in 
dollars is payable in any kind of dollars which is 
a legal tender at the time of payment. In addi- 
tion to the natural and unavoidable causes of 
variation in money value, everyone must take 
the additional risk of variation caused by an alter- 



ation in the money. Such alterations may be 
justified by necessity or other reasons of State 
almost equally cogent. 

Many people, who would be startled by legal- 
ized alterations in other commodities and their 
units of measure, think that alterations in money 
so as to make it more abundant and less valuable, 
is quite the correct thing to do; it helps the debtor 
and speculator and is said to give "a fillip "to 
business; it is always practicable, for creditors 
can be compelled to accept the inferior article and 
are then in no condition to cry stinking fish. To 
refuse the free and gratuitous coinage of silver 
dollars out of metal worth half their nominal and 
legal-tender value was said by the cheap-money 
candidate for the Presidency in 1 896, to shut the 
gates of mercy on mankind. The gates could 
have been kept open quite as easily by debasing 
the gold coin one-half, and more easily by liberal 
issues of paper money, as desired by the Populists. 
But neither of these methods would have suited 
the silver producers or been supported by the 
votes of the silver States. To alter money and 
its value by debasing the coin, or by substituting 
a cheaper metal, is an antiquated method involv- 
ing time and expense. The French livre was 
originally a pound of silver, but finally contained 
only about seventy grains troy, but it took a long 
time to do this. To inflate and depreciate a cur- 
rency with paper money is more adroit, and can 
be done quickly and cheaply ; paper money can 



be produced at once to an unlimited amount at a 
merely nominal cost. 

Alterations in money cause the standard of 
cost and value to become fallacious. The differ- 
ence is not readily perceived by everybody; 
prices alter, but the cause is not referred to the 
alteration made in the money. During the war of 
secession, accounts were kept and prices stated in 
dollars as before, but they were paper dollars. 
During July, 1864, the value in paper dollars of a 
dollar in gold varied between the extreme limits 
of $2.85 and $2.22. After the war ended, as the 
quantity of paper money was reduced, it was said 
gold fell in price. The prices and relative value 
of commodities did not at once and uniformly 
respond to the change. Some things rose faster 
or sooner than others during the expansion, and 
some things fell sooner or faster than others dur- 
ing the contraction of the currency. 



A brief history of the money of this country 
furnishes a practical illustration of the subject of 
money and money value. 

Colonial money was expressed in £, s. d., or 
pounds, shillings, and pence. But this is money 
in the abstract, ideal money, or, as it is called, 



money of account. What, then, was this money 
in the concrete ? v 

From the time of Queen Elizabeth until 18 16, 
a pound troy of sterling silver (.925 fine) was 
coined into 62 shillings. Spain and her colonies 
being^the chief source of_silver, the Spanish dol- 
larTound^ts wayTnto'England and this country. 
This dollar, called the old Seville piece of eight, 
contained the same amount of pure silver as 4s. 6d. 
sterling. But in this country, as finally settled, 
this dollar in Colonial currency was 8s. in New 
York and North Carolina ; 6s. in New England 
and Virginia ; 7s. 6d. in New Jersey, Pennsyl- 
vania, Maryland, and Delaware; 5s. in Georgia. 
The colonists in their foreign trade acquired Eng- 
lish, French, Spanish, Portuguese, and other gold 
and silver coins, which, taking their contents in 
pure metal and allowing the market ratio 
between gold and silver, could be valued in terms 
of Colonial money. Any colonist who sold Colo- 
nial produce abroad, bought foreign products, 
received or paid coin in his accounts, could state 
his transactions and his profit or loss in Colonial 
£, s. d. By making Colonial shillings smaller 
than English shillings the colonists gained noth- 
ing, for the prices of goods were raised to cor- 
respond. Nearly all the colonies issued paper ~ 
money and made it a legal tender, with penalties 
for asking a higher price in paper than in hard 
money, with the result that £100 specie was the 
equivalent of ;f 525 Massachusetts paper money in 




1740, and of ;f 1, 1 00 in 1748. Adam Smith said in 
commentmg on Colonial money (*' Wealth of 
Nations," B. 2, Chap. 2) : - A positive law may 
render a shilling a legal tender for a guinea 
because it may direct the courts of justice to dis^ 
charge the debtor who made the tender. But no 
positive law can oblige a person to sell goods and 
who IS at liberty to sell or not to sell as he 
pleases, to accept of a shilling as an equivalent to 
a guinea in the price of them." 

Continental Money. The colonies, afterward 
States, fought the mother country jointly and sev- 
erally on credit ; the people were opposed to taxa- 
tion. The Continental Congress had no power and 
the several States had no disposition, to tax. Con- 
gress and the States severally issued bills of credit 
to very large amounts. Continental money was 
expressed in Spanish dollars and ninetieths a 
Pennsylvania penny being one-ninetieth of a dol- 

An account of this money is given in a report, 
April 18, 1781, by a committee appointed to esti- 
mate and state the amount of the debts of the 
United States, with the necessary estimates for the 
current year as near as could be done, the debts 
being stated in Continental money at $230,000,000 • 
also in specie, on the basis of 75 to i , at $3,066,666% ' 
One Item of the total is $160,000,000 of Continental 
money then supposed to be outstanding. They 
say : - It can not be forgotten that these United 
States were plunged into a war and that an army 



was drawn together before any money was pro- 
vided or funds established for defraying the 
expense thereof. In this situation of affairs Con- 
grress met in May, 1775. They had no resource 
from whence to derive present supplies but that 
of emitting bills of credit redeemable at a f uture^ *^ 
day. On JuneT2ri775, Congress agreed"^© ~ emit 
two millions, which, on July 25th, was increased to 
three millions, for the redemption of which they 
pledged the confederated colonies ; on November, 
29, 177s, three millions more were authorized on 
the same security; on February 17, 1776, four 
millions more ; on May 9, 1 776, five millions more ; 
on July 22, 1776, five millions more. But as it 
was foreseen that such repeated issues of bills of 
credit would increase the quantity to too great a 
degree, and consequently occasion their deprecia- 
tion, it was resolved in October to borrow five 
millions, and in November a lottery was^set on 
foot. As neither loans nor the lottery were suffi- 
ciently productive, necessity compelled further 
emissions of biljs_ of credit. By this means the 
paper currency being multiplied began to depre- 
ciate. It was therefore resolved, September 10, 
I 'j'j'j, to prepare an earnest recommendation to the 
States to proceed to taxation ; also to borrow^larger 
sums. Unfortunately the tax failed, and the sums 
obtained from loans were greatly inadequate to 
the expenditure ; consequently more money* was 
emitted, and, notwithstanding the favorable turn 
in our affairs in 1778, depreciation increased with 





amazing rapidity. At the close of the year 1778 
the sums emitted and borrowed amounted to about 
one hundred and eight millions. Congress, anx- 
ious to put a stop to any further emissions and to 
provide a fund for redeeming whrt'was issued 
called upon the States to pay, etc. But the public 
treasury, receiving no recruit from taxes, was from 
time to time replenished with ne^emissions ; 
depreciation, instead of receiving a check,~^o^ 
, -^cee^d with redoubled vigor. On September i, 
^ 1 779' the sum emittea and in circulation amounted 
\ ^to $159,948,880; and as there was a great outcry 
i\j^ on account of the depreciation and the floods of 
^ a money emitted. Congress resolved that they would 
^ on no account whatever emit more bills than to 
make the whole two hundred millions. Congress 
was compelled by necessity to issue this remain- 
der, etc. 

The rate of exchange for hard money at Phil- 
adelphia was, at the end of 1776,1 1^ to i; of 1777, 
4 to l; of 1778, 9 to i; of 1779, 45 to l; of 1780, lOO 
to i; m May, 1781, from 200 to 500 to i, when it 
ceased to circulate there, and, soon afterward, 

^^ The quantity of the paper money destroyed its 
value, although it was sustained by legal-tender 
laws, limitation of prices, penal laws, vigilance 
committees, and military force. 

Thos. Paine, in a letter to Danton, dated May, 
1793, said: "The assignats are not of the same 
value they were a year ago, and as the quantity 




increases the value of them will diminish. This 
gives the appearance of things being dear when 
they are not so in fact, for in the same proportion 
that any kind of money falls in value, articles rise 
in price. If it were not'^or this the quantity of 
assignats would be too great to be circulated. 
Paper money in America fell so much in value 
from the excessive quantity of it thaf in the year 
1 78 1 I gave $300 for one pair of worsted stock- 
ings. What I write to you on this subject is 
experience and not merely opinion." 

While Continental money remained a legal 
tender, debtors, executors^ trustees, and guardians 
could easily discharge their liabilities. But after 
the collapse and the repeal of the legal-tender 
acts, debts theretofore incurred were in a differ- 
ent category. Debts were scaled down, stay laws 
passed, about all kinds of property made a legal 
tender at a valuation, and in some States new 
bills of credit wer^ issued. There was financial 
anarchy and almost civil war. 

A Coinage and a Money Unit, 

The States having achieved their independence 
and survived their difficulties, adopted the pres- 
ent Federal Constitution and therein provided that 
Congress shall have power to coin money, rege- 
late the value thereof and of foreign coin, and fix 
the standard of w eight s and measures. Also that : 
gp^ State shall coin money, emit bills of credit, 
make anything but gold and silver coin a tender 




in payment of debts, or pass any law impairing 
the obligation of contracts. 

The Secretary of the Treasury (Mr. Hamilton), 
in his report relative to the establishment of a 
mint, etc., January 28, 1791, said: ''The pound, 
though of various values, is the unit of account in 
all the States. But it is not equally easy to pro- 
nounce what is to be considered as the unit in the 
coins. The manner of adjusting the foreign 
exchanges would seem to indicate the dollar as 
best entitled to that character. In these the old 
piaster of Spain, or old Seville piece of eight rials, 
of the value of 4s. 6d. (sterling), is evidently con' 
templated. But this circumstance in favor of the 
4oll§r loses much of its weight from^wo consid- 
erations. That species of coin has never had any 
settled or standard value according to weigh*t or. 
fineness, but has been permitted to circulate by 
tale, without regard to either, very much as a 
matter of convenience, while gold has had a fixed 
price by weight and with an eye to its fineness. 
This greater stabiH^tyJn the value of gold is an 
argument of force for regarding the money unit 
as having been hitherto virtually attached to gold • 
24 Ji grains of fine gold have corresponded ~^^I!h 
the nominal value of the dollar in the several 
States, without regard to the several denomina- 
tions of its intrinsic worth. But if the dollar 
should, notwithstanding, be supposed to have the 
best title to being considered as the present unit, 
it would remain to determine what kind of a dol' 



lar ought to be understood, or in other words 
what quantity of silver." 

"The old piaster of Spain, which appears to 
have regulated our exchanges, weighed 17 dwt. 
12 grains, and contained 3863^ grains of fine silver. 
But this piece has been long since out of circu- 
lation. The dollars now in common currency are 
of recent date and much inferior to that, both in 
weight and fineness. The average weight of 
these, upon different trials in large masses, has 
been found to be 17 dwt. 8 grains. Their fine- 
ness is less precisely ascertained ; the result of 
various assays made by different persons under 
the direction of the late Superintendent of the 
Finances, and of the Secretary, being as various 
as the assays themselves. The experiment which 
appears to have the best pretensions to exactness 
would make the new dollar to contain 370.933 
grains of pure silver. And the Secretary finally 
reached the conclUvSion that the sum of money 
of account of each State, corresponding with the 
nominal value of the dollar in each State, corre- 
sponds also with 24^ grains of fine gold and with 
something between 368 and 374 grains of fine 
silver." (The average of these is 371.) 

By an act of Congress, April 2, 1792, establish- 
ing a mint, etc., it was enacted that the money of 
account of the United States shall be expressed 
in dollars_or units, dimes or tenths, cents or, 
hundredths, and mills or thousandths, and th^t 
all accounts in the public offices and all proceed- 



ings in the courts of the United States shall be 
kept and had in conformity to this regulation; 
also, that there shall be from time to time struck 
and coined at the mint, coins of gold, silver, and 
copper, having thereon the devices and legends 
in the act specified, to wit : In gold, eagles ($io), 
half and quarter eagles ; in silver, dollars, halves! 
quarters, dimes, and half-dimes ; in copper, cents! 
and half^ents. The dollars each to be of the\ 
value of the Spanish milled dollar as the same is 
now current, and to contain 371.25 grains (troy) of 
pure silver or 416 grains of standard silver; the 
other silver coins to be of standard silver and of 
proportionate weight and value ; the eagle to con- 
tain 247.50 grains of pure or 270 grains of stan- 
dard gold ; the half and quarter eagles to be of 
standard gold and of proportionate weight and 

Also, that the gold and silver coins issued from 
the mint shall be a lawful tender in all payments 
those of full weight at their nominal value and 
those of less weight at values proportional thereto. 

Also, that the proportional value of gold to 
silver in all coins which shall by law be current 
within the United States shall be as fifteen to 
one, according to quantity in weight of^pH?i^ld~" 
or pure silver; that is to say, every fifteen pounds 
weight of pure silver shall be of equal value in 
all payments with one pound weight of pure gold, 
and so in proportion as to any greater or less 
quantities of the respective metals. 



In estimating coins the alloy is not valued. 

The coinage of gold and silver was made free /? 
and gratuitous. 

Foreign Coins. By the act of February 9, 1793, 
regulating foreign coins, etc., sundry foreign 
gold and silver coins therein named were to pass 
current as money within the United States and 
be a legal tender at the rates therein specified. 
But all such coins received in payment of moneys 
due the United States (Spanish milled dollars and 
parts thereof excepted), after coinage should begin 
at the mint, were to be coined anew. Other acts 
of a similar nature were passed from time to time 
until, by the act of February 21, 1857, all former 
acts authorizing the currency of foreign coin and 
declaring the same a legal tender in payment of 
debts were repealed. 

Ever since the act of 1 792 the money unit of 
the United States has been called a dollar; all 
accounts and sums of money are stated in terms 
of it and its decimal parts. And by that act a 
dollar signified 24^ grains of pure gold, or 371 J^ 
grains of pure silver, in United States coin, or in 
foreign coin made current by law. 

But the relative market value of the two metals 
having varied from the ratio of 1 5 to i by the act 
of June 28, 1834, "concerning the gold coins, 
etc.," the weight of the eagle was reduced to 232 
grains of pure and 258 grains of standard gold. 

This altered the coinage ratio to ^=16+ to i ; 
the commercial ratio then was 15.73 to ^- Silver 






was intentionally undervalued in order by its ex 
portation, to bring about a single gold standard" 
The gold coins previously minted were given the 
value of $0.94.8 per pennyweight ; those remain- 
ing in the country were recoined 

Afterward, by the act of January ,8, ,837 
supplementary to the act establishing a mint 
etc the standard of nine-tenths fine for both 
gold and silver coins was adopted. The standard 
weight of the gold coins was left the same as 
under the act of ,834 ; the alloy was reduced and 
a little more gold added. The weight of the sil- 
ver dollar was reduced to4.2>^ grains by reduc- 
ing the alloy, the other silver coins to be in pro- 
portion. The coinage ratio thereby became 
aj.M- '5-988+ to I, the commercial ratio then 

^.V"^/!,^"^^/" ''^°^ '"''^'' ^""tinned to be worth 
more than its coinage ratio until 1874 

In order to prevent the exportation of the frac- 
tional silver coins, by the act of February 21, 18?^ 
amendatory of existing laws relative to the half- 

nf r rfJ!f ';, ^'"^^^ ^°*^ half^iime," the weight 
of the h^f-dollar was reduced to .92 grains, and 
of the others in proportion. Their legal-tender 
power was limited to $5 in any one payment, and 
their coinage to be done solely on Government 
account. They were reduced from standard to 
token coins. — — — — 

The coinage of gold dollars and of double 
eagles was authorized by the act of March x 

1 849. •^* 



This suffices to show the alterations made in 
the coinage prior to the year 1873. 

Bank Notes. Althoug it was generally con- 
ceded that Congress could establish a money sys- 
tem, give its unit a name, and manufacture coins 
pursuant thereto, yet its power to issue directly or 
indirectly paper tokens in any form suitable for 
circulation as money was denied by the advocates Jj 
of State rights, although it was adjudged by the 
Supreme Court of the United States that Congress 
could create a bank with power to issue bank 
notes ; and it was also held by that court that such 
notes issued by a corporation created by a State 
were not ** bills of credit," prohibited by the Fed- 
eral Constitution. The result was that with the 
exception of a first and second bank of the 
United States, hereafter mentioned, Congress 
created no banks until 1 863 ; and until then the 
several States competed with each other in stuff- 
ing the currency with bank notes issued by cor- 
porations created under State authority. The 
doctrine generally received and acted on was, that 
Congress could coin money and the States could 
expel it from circulation and from the country by / 
issues of bank notes. 

But it finally became obvious that Congress 
could not regulate the value of money unless it 
had the power to regulate its kind and quantity. 
Whereupon, about 1883, it was finally adjudged 
that " Congress has power to provide a National // 
currency and secure the benefit of it to the peo- 







pie To this end Congress has denied the quality 
of legal tender to foreign coin, and has provided 
by law against the imposition of counterfeit and 
base com on the community. To the same end 

ciSr "^""l '^'■""■""' ''y ^"'table enactments the 
circulation of any notes not issued under its 
authonty. Without such power its attempts to 
secure a sound and uniform currency to the coun 
try must be futile. Also, that Congrel can 
authorize the direct issue of bills of credit and 
make them a legal tender in all payments " 

r J5\^^'* ^*°^ ""^ '^^ U'^'t^^ States was estab- 
lished by an act of Congress, approved February 

M;rr'' Z Vh*'°'°°°'°°°' t° continue untJ 
March 4. i8i I. This act was passed more than a 
year prior to the act establishing a coinage and a 
money unit to be called a dollar - 

At first the States created banks of issue under 
special charters, a few prior to .790. By "g'l 
they had become numerous, with a nominal cap. 
ital exceeding $75,ooo.a>o, which usually con- 

the stoct "^ °' '"' '^''^^ °' ^''^ subscribe to 

The Banking Principle. According to this orin 
c:ple, a bank of issue needs no more money to 3 
It in operation than enough to furnish an olBce 
and to pnnt its bank notes. Having fiLd itJ 
coffers with them it is ready to exchange them 
for commercial paper, discounted at the current 
rate ; ,t exchanges its notes not bearing interest 
for the notes and bills of others bearing interest 




When the paper discounted matures and is paid, 
it has redeemed its notes or acquired the means 
to do so. Thereupon it can, at least theoretically, 
continue to discount commercial paper ' and 
redeem its notes in that manner for all time, 
although bank notes became so abundant that a 
pair of worsted stockings would sell for $300, and 
other things in proportion. But a demand for 
specie knocks the wind out of the banking prin- 
ciple, and that occurs when specie is wanted for 
ex portation_ or other purpose. The notes get into 
circulation under the faith that they will be 
redeemed on demand^ and if payment is refused 
the solvency~6r^e bank is distrusted and its 
notes become uncurrent. But the banking prin- 
ciple was aided by circulating the notes as far 
away from home as possible and scattering them 
broadcast so that they might slowly return in 
single file. This was effected by exchanging 
notes with distant banks under a mutual under- 
standing to scatter the notes as much as possible, 
or by lending them, e. g., at Chicago to solvent 
buyers of live stock, grain, etc., from people 
residing west of the Mississippi. 

After a bank has put its notes in circulation 
and thereby assisted in providing the people with 
a currency, it can refuse to redeem the notes and 
still continue to do business, provided its debtors 
will pay or can be forced to pay their debts. 
Having borrowed its capital from the people it 

would lose it by redeeming its notes. Therefore, 







It was customary, when the notes became dis- 
trusted so that it would be difficult or impossible 
to reissue them, to suspend payment. The Bank 
of England suspended specie payment in 1707 ^ 
and did not resume for twenty years or more! 
Why should not American banks imitate so illus- 
trious an example ? 

In "Gouge on Banking" (Part II, p. 143) is 
quoted a report of the directors of the State 
Bank of South Carolina, dated October i 18 19 in 
which the effects produced by the resumption of 
specie payments are deplored as unnecessary 
evils. - It becomes necessary (say the directors) 
to inquire whether, in the present sUte of the 
world, a metallic currency sufficient for the wants 
of our country is attainable, and whether, if it be 
obtained, it will be worth the necessary cost • 
whether, in fact, a currency equally good, per' 
haps better, may not be established without any 
of those sacrifices which our country has been 
already obliged to make, and which it must for a 
long time make, to secure this fugitive and 
evanescent object. In Great Britain, where alone 
m modern days, gold and silver have for a short 
time been left freely to find their value in an un- 
shackled market, they have been known to 
fluctuate m value nearly 50 per cent in the 
course of a few months, a fluctuation which no 
paper currency has undergone, except such as has 
been issued by the mandates of arbitrary and 
necessitous governments, where no value is re- 



ceived for their emission, no pledge given for 
their redemption." 

No doubt the notes of this bank never fluc- 
tuated in value relative to each other ; two notes 
for the same amount were always of equal value. 

But in "Gouge on Banking "(Part II, p. 166) is 
griven a table showing the discount on the notes of 
the Pennsylvania country banks, not in specie but 
in Philadelphia bank paper, from which it appears 
that November i, 18 19, the discount was, of the 
notes of one bank, 60 per cent ; of eight banks, 
50 per cent ; others from 15 to 45 per cent, and 
the notes of seven out of a total of thirty-three 
were at par. On the following page of the same 
book is given a table of the prices of bank notes 
at Baltimore, August 7, 1819, the discount on them 
being as follows: New England notes, i to 6; 
Pennsylvania, i to 60; Delaware, i to 50; Mary- 
land, I to 40; District of Columbia, i to 60; Vir- 
ginia, 1% to 25; North Carolina, 20 to 25; South 
Carolina, 8 to 10; Georgia, 7 to 8; Kentucky, 15 
to 25 ; Ohio, 10 to 50; Indiana, Illinois, and Mis- 
souri, 15 to 60. 

To which is added the statement that the 
prices of bank notes varied several per cent in the 
course of a week. The notes which were at par 
in one part of the country were in other parts 
at a heavy discount. A bank's paying specie did 
not prevent its notes from depreciating, for no- 
body knew how long any distant bank would con- 
tinue to pay specie. All banks whose notes were 




at a discount at New York of less than 5 per cent, 
and some of the others, were understood to pay 
specie on demand. 

When the banks suspended specie payment, as 
they often did, the people, and the government 
also, had the benefit of Hobson's choice — they 
could use the dishonored bank notes as a currency 
or go without any kind of money. The notes be- 
ing of various and variable values, everybody 
could estimate daily, by the aid of bank-note 
detectors and reporters, the specie value of his 
money. For others assisted in furnishing the 
people with a currency, to wit, ordinary counter- 
feits ; genuine notes altered from lower denomi- 
nations to higher ones; genuine notes of failed 
banks altered to the names of solvent banks; 
notes of banks having no existence ; notes pur- 
porting to be issued by a bank which never issued 
any of that denomination. 

According to " Gouge on Banking," Part II, p. 
160, Governor Wolcott, in an address to the Legis- 
lature of Connecticut in May, 1826, said: "The 
currency which is required by the daily exchange 
between all the people, and by which the trans- 
actions between farmers, mechanics, laborers, 
manufacturers, and traders is regulated, is almost 
exclusively in bank notes, which are issued by a 
great number of independent corporations which 
possess an exclusive privilege of creating notes 
for their own benefit." 

'*This monopoly is here so exercised that neither 



the amount of currency which is issued, nor the 
amount of that which is suddenly suspended, 
withdrawn, or annihilated, is subject to any prac- 
tical limitation other than what must arise from 
the state of foreign and domestic exchanges, the 
speculations of individuals, political events, and 
the necessities or caprices of the numerous monop- 
olizing incorporations who entirely control the 
circulation of the country. These last observa- 
tions require no other confirmation than a refer- 
ence to the notorious fact that no coins circulate 
among the people, except small sums of copper 
and the fractional parts of a dollar in silver, which 
is our silver unit. Our unit of gold in a coin of 
$10, which, with its fractional parts in coins of $5 
and $2.50, have wholly vanished from circulation. 
The effects produced on the people are that no 
man can travel fifty miles in any direction with- 
out receiving paper notes of which he possesses 
no means of ascertaining the value, or even the 
authenticity, and this difficulty increases in pro- 
portion to the distance of an individual from some 
one of these banks. From these causes the whole 
country is subject to complex evils, arising from 
either a redundant or too restricted circulation of 
the only currency which can be obtained, and 
hence sudden variations in the prices of exchange- 
able commodities far exceeding the customary 
profits of regular industry and commerce, thereby 
converting all transactions of business, especially 
at a distance from the seats of foreign commerce, 





into mere lotteries. It is amidst explosions of 
credit, principally occasioned by the conduct of 
banks, that every class of industrious citizens and 
all our enterprising young men are exposed to 
repeated losses, against which no vigilance can 
guard and no prudence exempt them." 

War was declared against Great Britain in June, 
1 812, and terminated in 181 5. Washington was 
taken by a small invading force and the public 
buildings burned. Insolvency compelled peace 
without honor, except on the water, and finally at 
New Orleans. 

There was no National currency, no money or 
its equivalent, which represented the same value 
in all places. The first National bank ceased to 
exist in 181 1. Local banks overspread the land, 
and upon these the Government was thrown for 
currency and for loans. They, unequal to the 
task, and having removed their own foundations 
by banishing specie by profuse issues, sank under 
the double load of National and local wants, and 
stopped specie payments, except New England, 
which section was unfavorable to the war. Treas^ 
ury notes were then the resort of the Government. 
They were issued in great quantities, and not 
being convertible into coin at the will of the 
holder, soon began to depreciate. In the second 
year of the war, depreciation had become enor- 
mous. An officer setting out from Washington 
with a supply of these notes found them sunk 
one-third by the time he reached the northern 



frontier. They could not be used as a currency, 
but only to obtain local bank paper, itself greatly 
depreciated. All Government securities were 
under par, even for depreciated bank notes. Loans 
were obtained with great difficulty at large dis- 
count, on the lender's own terms, and still attain- 
able only in depreciated bank notes. (Benton's 
*' Thirty Years' View," Vol. I, p. i.) 

The form of these Treasury notes was, in sub- 
stance, that the United States would receive this 

note for dollars, with interest from the date 

thereof, in all payments to them, or issue on de- 
mand therefor to A B or order 6 per cent stock, 
agreeably to the act of Congress. Total amount 
issued, $36,680,794. Of the eighty millions of 
loans negotiated by the Government the avails 
were only thirty millions, after deducting dis- 
counts and depreciations. (" United States Notes," 
by Knox, Chap. 5.) 

The population had trebled since the days of 
Continental money, and a Federal Government 
existed with adequate powers, but its adminis- 
tration was in the hands of the advocates of State ] 
rights, who shuddered at the idea of a Treasury ; 
note drawn payable to the bearer, or made a legal 
tender in any form. The United States then 
existed in the plural number only. 

But the President (Mr. Madison) having been 
chased out of Washington by the enemy, a cur- 
rency consisting of State bank notes sickened on 
the Democratic stomach, and that party, with the 






President at its head, discovered sufficient author- 
ity to establish the Second Bank of the United 
States, capital $35,000,000, created by an act of 
Congress approved April 10, 18 16, to continue 
until March 3, 1836. The United States owned 
one-fifth of the stock and lost it all. 

In support of this measure Mr. Calhoun said 
in the House : " There has been an extraordinary 
revolution in the currency of the country. By a 
sort of undercurrent the power of Congress to 
regulate the money of the country has caved in, 
and upon its ruin has sprung up these institu- 
tions which now exercise the right of making ! 
money in and for the United States. For gold 
and silver are not the only money, but whatever 
is the medium of exchange and sale, in which 
^5?i^ paper alone was now employed and had 
become the money of the country. A change, 
great and wonderful, has taken place, which 
divests you of your rights and turns you back to 
the Revolutionary War, in which every State " 
issued bills of credit, which were made a legal 
tender and were of various values. We have in 
lieu of gold and silver a paper medium, une- 
qually and generally depreciated, which aflFects 
the trade and industry of the nation, which para- / 
lyzes the National arm, and which sullies the ■ 
faith, both public and private, of the United 
States." ' 

And he further stated that the banks had one 
hundred and seventy millions in circulation, and 



not over fifteen millions in specie for its redemp- 

A currency composed of State bank notes 
having proved to be disastrous, by a resolution, 
relative to the more effectual collection of the 
public revenue, approved April 30, 18 16, the Sec- 
retary of the Treasury was directed to adopt 
such measures as he may deem necessary to 
cause, as soon as may be, all duties, taxes, debts, 
and sums of money, accruing or becoming pay- 
able to the United States, to be collected and paid 
in the legal currency of the United States, or 
Treasury notes, or notes of the Bank of the 
United States, as by law provided, or in notes of 
banks which are payable and paid on demand in 
the said legal currency, and that from and after 
February 20th next, no such duties, taxes, debts, 
or sums of money accruing to the United States 
ought to be collected or received otherwise than 
in the said legal currency. Treasury notes, notes 
of the Bank of the United States, or notes of 
banks payable and paid on demand in said legal 

The money of the country must have been bad 
enough when Congress saw fit to declare that, 
after the expiration of nearly a year, only specie, 
its own notes, and the notes of specie-paying 
banks " ought " to be received at the Treasury. 

By the charter of the Second Bank of the 
United States, its bills and notes payable on 
demand were made receivable in all payments to 






the United States unless otherwise directed by an 
act of Congress ; also, the deposits of the money 
of the United States in places in which the bank 
and branches thereof were established were to be 
made in said bank or branches thereof, unless the 
Secretary of the Treasury shall at any time other- 
wise direct ; in which case the Secretary of Treas- 
ury shall immediately lay before Congress, if in 
session, and if not, immediately after the com- 
mencement of the next session, the reasons of 
such order or direction. 

According to Mr. Benton (''Thirty Years' View," 
Vol. I, p. 242), there was a part of the Revolu- 
tionary debt amounting to thirteen and a quarter 
millions which bore interest at 3 per cent. The 
price of this stock in 1817 was 64 per centum ; the 
money was in the Bank of the United States to 
pay it, a gratuitous deposit bearing no interest. I 
had submitted a resolve early in my term of ser- 
vice to have this stock purchased at its market 
value, which was resisted and defeated by the 
friends of the bank. I then moved a resolve that 
the bank pay interest on the deposits, which was 
opposed and defeated in like manner. 

In March, 1832, the bank was notified that the 
Government desired to pay off the outstanding 
3 per cents, to wit, nine millions, the public 
deposits then being $12,000,000. Instead of assist- 
ing, the bank secretly took steps to prevent their 
redemption. The money was worth 7 per cent to 
the bank. But its conduct became known, where- 



upon its president said the arrangement was made 
for the public good. To disburse the money 
would tighten the money market. Every bank 
made a depository of public funds objects to their 
withdrawal for the same ostensible reason, but in 
fact because the profits of the bank would be 
thereby curtailed. 

General Jackson, then President, became hos- 
tile to the bank, and the Secretary of the Treasury, 
as directed by the President, removed the public 
deposits from it. 

The entire National debt was paid by January 
I, 1835, leaving a large and increasing surplus of 
revenue, and by an act of Congress, approved 
June 23, 1836, the public deposits were to be made 
in specie-paying State banks as in the act speci- 
fied, by which it was also provided that the money 
in the Treasury on January i, 1837, reserving 
$5,000,000, should be deposited with the several 
States upon the terms and in the proportions as 
in the act specified; the same to be made, one 
quarter on January i, 1837; one quarter on April 
I, one quarter on July i, and one quarter on 
October i, 1837. 

The surplus revenue January i, 1837, after 
reserving the five millions, amounted to $37,468,- 
859.97. The first installment was paid in specie or 
its equivalent, the second in valid money, the third 
in depreciated paper, and the fourth was never 
made. The revenues were from six to ten 
millions short of the expenditures, and it be- 


yAL UE. 




<iaine necessary to issue Treasury notes to meet 
the expenditures to very large amounts, as to 
which, see "United States Notes," by Knox, 
Chap. 6. 

The banks suspended specie payments in May, 
1837. Mr. Benton claimed that he foresaw it. '' I 
recalled the recollection of the times of 18 18-19 
when the Treasury reports of one year showed a 
superfluity of revenue for which there was no 
want, and of the next a deficit which required to 
be relieved by a loan, and argued that we must 
now have the same result from the bloat in the 
paper-money system which we then had. Of the 
act which rescinded the specie circular (of General 
Jackson) and made the notes of the local banks 
receivable in payment for all federal dues, I said, 
* I oppose it.' I did not join in putting down the 
Bank of the United States to put up a wilderness 
of local banks. I did not join in putting down 
the paper currency of a National bank to put up a 
National paper currency of a thousand local 
banks." (" Thirty Years' View," Vol. II, Chap. 2.) 
Mr. Benton also says (lb.. Chap. 7) : "A great 
disturbance took place in the business of the 
country from the stoppage of the banks. Their 
agreement to receive each other's notes made 
them the sole currency of the country. It was a 
miserable substitute for gold and silver, falling 
far below these metals when measured against 
them, and very unequal to each other in different 
parts of the country. Those of the interior and 



of the West being unfit for payments in the great 
commercial Atlantic cities, were far below the 
standard of the notes of those cities, and suffered 
a heavy loss in all remittances to those cities, to 
which points the great payments tended. Specie 
disappeared as a currency, and became an article 
of merchandise. Even metallic change disap- 
peared down to the lowest subdivision of the 
dollar. Its place was supplied by every conceiv- 
able variety of individual and corporation tickets. 
Taken by surprise in the deprivation of its 
revenues, the Federal Government could only do 
as others did— receive and pay out depreciated 


The collapse of the State banks in May, 1837, 
caused the Democratic party, with Mr. Van Buren 
at its head, to fayor an independent Treasury and 
hard money for Government dues, and an act for 
that purpose was passed July 4, 1840. 

In support of the measure Mr. Benton said : " I 
do not pretend to estimate the moneyed losses, 
direct and indirect, to the Government alone from 
the use of local bank notes in the last twenty-five 
years, including the war and covering three gen- 
eral suspensions. Leaving the people out of view, 
as a field of losses beyond calculation, I confine 
myself to the Federal Government and say its 
losses have been enormous. We have had three 
general stoppages of the local banks in the short 
space of twenty-two years," etc. (" Thirty Years' 
View," Vol. II, Chap. 15.) 



To show the condition of the people after the 
collapse of 1837, Governor Ford, in his " History 
of Illinois," said : " The treasury of the State 
was indebted (1842) for the ordinary expenses of 
government to about $313,000. Auditor's war- 
rants were selling at 50 per cent discount, and 
there was no money in the treasury whatever, 
not even to pay postage on letters. The treas^ 
ury was bankrupt. A debt of fourteen millions 
had been contracted for canal, railroad, and other 
purposes. The currency of the State had been 
annihilated ; there was not over two or three hun- 
dred thousand dollars of good money in the pock- 
ets of the whole people. They were indebted to 
the merchants, nearly all of whom were indebted 
to the banks or foreign merchants, and the banks 
owed everybody, and none were able to pay." 

During this period the several States resorted 
to stay valuation and appraisement laws. A large 
part of the insolvency was settled under the 
bankrupt act of 1 84 1 . 

In 1 840 Mr. Benton moved for leave to bring 
in a bill to tax the circulation of banks, bankers, 
and all corporations, companies, or individuals 
which issued paper currency. He said nothing 
was more reasonable than to require the moneyed 
interest which was employed in banking, and 
especially in that branch of banking which was 
dedicated to the profitable business of converting 
lampblack and rags into money, to contribute to 
the support of the Government. While the pro- 



ducing and laboring classes were all taxed in their 
salt, iron, sugar, etc., the banking interest, which 
manufactured and monopolized money, which put 
up and put down prices, and held the whole coun- 
try tributary to its wealth, paid nothing. In other 
countries the banking interest was subject to 
taxation. The tax on circulation and bills of 
exchange was a handsome item in the budget of 
British taxation. In this country, during the war 
with Great Britain, the banking interest had been 
taxed in its circulation, discounts, and bills of 
exchange. At the end of the war this tax was 
abolished, while most of the war taxes were con- 
tinued in force, among them the tax on salt and 
other necessaries of life. It is time to make the 
banks pay and to let salt go free. But his motion 
came to nothing. (Benton's " Thirty Years," etc. 

Vol. II, p. 179.) 

The hard times ensuing after 1836-7 defeated 
the Democratic party in the Presidential canvass 
of 1840, and the independent Treasury act was 
repealed August 13, 1841. But this party having 
regained power in 1845, reCwStablished their meas- 
ure by an act for that purpose, approved August 
6, 1846, by which it was provided that on and 
after January i, 1847, all sums due the United 
States should be paid in coin, and after April i, 
1847, ^ payments made on account of the United 
States should be made in coin or Treasury notes 
if the creditor agree to receive them. Thereafter 
until the war of secession the Federal Government 




kept its own funds and did business on a specie 

About 1840 the notion began to prevail that 
banking ought to be free ; that everybody ought 
to be allowed to issue bank notes who could com- 
ply with the conditions prescribed. But these 
banks failed also. In 1854 a free banking system 
adopted in Indiana went to pieces and the hold- 
ers of the notes suffered great loss. 

In 1857 there was another bank suspension, 
the effects of which continued when the Civil War 
began. In the fall of i860 Mr. Lincoln was 
elected President, and thereupon the Southern 
States attempted to secede, and to that end com- 
bined as the Confederate States, in February, 
1 861. The State of Illinois then had a free bank- 
ing system. The banks were numerous, small, 
and generally located in out-of-the-way places, 
with a view to avoid the redemption of their 
notes. They were so many petty paper-money 
factories, having about $12,000,000 in notes in cir- 
culation and only $302,905 in specie for their 
redemption. The bonds held in the State treas- 
ury to secure payment of the notes were chiefly 
bonds of the Southern States. As they seceded 
their bonds fell in value; even bonds of the 
United States fell to a heavy discount. The peo- 
ple lost a large per cent of the face value of this 
" stumptail " money, and were left without a cur- 
rency. The prostration was complete. The 
paper money issued out of the National Treasury' 



was about the first good money which the people 
of Illinois ever had, and enabled them to show 
their hand and make their mark in the war 



The war of secession caused its adoption and 
the suppression of paper money issued under 
State authority. 

Mr. Lincoln was elected President in the fall 
of i860, and thereupon the Southern States 
attempted to secede from the Union, and to that 
end combined as the Confederate States. On 
April 14, 1 86 1, Fort Sumter surrendered to the 
rebels, and thereupon the President issued a call 
for 75,000 men ; also for a special session of Con- 
gress, to meet July 4, 1861. In May, 1861, he 
called for thirty-nine volunteer regiments of 
infantry and one of cavalry ; also directed an 
increase of the regular army by eight regiments 
of infantry, one of artillery, one of cavalry, and 
the enlistment of 13,000 seamen. 

Congress met July 4, 1861. The Union army 
was defeated at Bull Run July 21, 1861, and there- 
upon Congress authorized the enlistment of 500,- 
000 volunteers. In August, 1861, the Confederate 
Congress authorized the Confederate President 
to accept the services of 400,000 volunteers, to 
serve not less than one nor more than three years. 




The rebels then had in the field not less than 
210,000 men. (McPherson's "History of the 
Rebellion," p. 117.) 

Lee surrendered to Grant April 9, 1865, and 
the war ended soon thereafter, at which time 
the Union had in the field an army of 1,000,016 
men and a navy of 530 vessels of all kinds, 
armed with 3,000 guns and manned by 51,000 
men. The public debt, which, on June 20, i860, 
was $64,769,703.08, on August 31, 1865, was 
$2,845,907,626.56 ("United States Notes," Knox, 
pp. 72 and 85), a condition of things quite differ- 
ent from that existing in March, 1861, when 
treason and rebellion beleagured Washington, 
and Mr. Lincoln was forced to reach it in dis- 

Pursuant to an act of Congress of July 17, 186 1, 
authorizing a loan of $250,000,000, and an act of 
August 5, 1 86 1, supplementary thereto, the Secre- 
tary of the Treasury (Mr. Chase), on August 15, 
1 86 1, effected an arrangement with the associated 
banks of Boston, New York, and Philadelphia, by 
which they agreed to take fifty millions of the 
loan in three-year Treasury notes, bearing 7.3 per 
cent interest, payable semi-annually, with the priv- 
ilege to take a like amount on October 15th, then 
next, and another like amount on December 1 5th 
following. In aid of the loan as agreed, the Sec- 
retary caused books of subscription to be opened 
throughout the country and the people subscribed 
liberally, so that the banks took the second fifty 




millions in similar notes, and on November i6, 

1 86 1, took the third fifty millions in twenty-year 
6 per cent bonds, at a rate equivalent to bonds 
bearing 7 per cent, payable semi-annually. 

Demand Notes. Also, the above acts authorized 
the Secretary, as a part of the loan, to issue in 
exchange for coin, or in payment of salaries and 
other dues from the United States, Treasury 
notes of denominations not less than $5, not bear- 
ing interest but payable on demand and receiv- 
able for all public dues, to an amount not exceed- 
ing $50,000,000, and reissuable until December 31, 

1862. In form these notes were: "On demand 
the United States promise to pay the bearer 

dollars." They were the first paper money 

issued directly out of the Treasury. The ordinary 
Treasury notes were in large denominations, pay- 
able after a time specified, to the order of 

and bearing interest. 

Congress met in regular session December 2, 

1 86 1, and the Secretary, in his report thereto, esti- 
mated that, if the war continued, the public debt, 
which was $90,867,828 on July i, 1861, would be 
five hundred and seventeen millions on July i, 

1862, and eight hundred and ninety-seven millions 
on July I, 1863, and also said: ** To enable the 
Government to obtain the necessary means for 
prosecuting the war to a successful issue, without 
unnecessary cost, is a problem which must engage 
the most careful attention of the Legislature. 
The Secretary has given to this problem the best 



consideration in his power, and now begs leave to 
submit to Congress the result of his reflections." 
"The circulation of the banks of the United 
States on January i, 1861, was computed to be 
$202,000,767, of which $150,000,000, in round num- 
bers, was in the States now loyal. The whole of 
this circulation constitutes a loan without interest 
from the people to the banks, costing them noth- 
ing except the expense of issue and redemption 
and the interest on the specie kept on hand for 
the latter purpose; and it deserves consideration 
whether sound policy does not require that the 
advantages of this loan be transferred, in part at 
least, from the banks, representing only the inter- 
ests of the stockholders, to the Government, rep- 
resenting the aggregate interests of the whole 
people. It has been well questioned by the most 
eminent statesmen whether a currency of bank 
notes issued by local institutions under State laws 
is not in fact prohibited by the National Consti- 
tution. Such emissions certainly fall within the 
spirit, if not within the letter, of the constitutional 
prohibition of the emission of " bills of credit " by 
the States and of the making by them of any- 
thing except gold and silver coin a legal tender 
in payment of debts." 

" However this maybe, it is too clear to be reas- 
onably disputed that Congress, under its powers 
to lay taxes, to regulate commerce, and to regu- 
late the value of coin, possesses ample authority 
to control the credit circulation which enters so 






largely into the transactions of commerce, and 
affects in so many ways the value of coin. In the 
judgment of the Secretary, the time has arrived 
when Congress should exercise this authority. 
The value of the existing bank-note circulation 
depends on the laws of thirty-four States and the 
character of some sixteen hundred private cor- 
porations. It is usually furnished in greatest 
proportions by institutions of least actual capital ; 
circulation, commonly, is in the inverse ratio of 
solvency. Under such a system, or lack of sys- 
tem, great fluctuations and heavy losses in dis- 
counts and exchanges are inevitable, and not 
infrequently, through failure of the issuing insti- 
tutions, considerable portions of the circulation 
become suddenly worthless in the hands of the 
people. The recent experience of several States 
m the valley of the Mississippi painfully illus- 
trates the justice of these observations, and en- 
forces, by the most cogent, practical arguments, 
the duty of protecting commerce and industry 
against the recurrence of such disasters. The 
Secretary thinks it is possible to combine with 
this protection a provision for circulation, safe to 
the community and convenient for the Govern- 

" Two plans for effecting this object are sug. 
gested. The first contemplates the gradual with- 
drawal from circulation of the notes of private 
corporations, and for the issue in their stead of 
United States notes payable in coin on demand, 

in amounts sufficient for the useful ends of a rep- 
resentative currency. The second contemplates 
the preparation and delivery to institutions and 
associations, of notes prepared for circulation 
under national direction, and to be secured as to 
prompt convertibility into coin by the pledge of 
United States bonds and other needful regula- 

" The first of these plans was partially adopted 
at the last session of Congress, in the provision 
authorizing the Secretary to issue United States 
notes payable in coin. This provision may be so 
extended as to reach the average circulation of 
the country, while a moderate tax, gradually 
augmented, on bank notes, will relieve the 
national from the competition of local circula- 
tion. It has already been suggested that the sub- 
stitution of a national for a State currency upon 
this plan would be equivalent to a loan to the 
Government without interest, except on the fund 
to be kept in coin, and without expense except 
the cost of preparation, issue, and redemption ; 
while the people would gain the additional 
advantage of a uniform currency, and relief from 
a considerable burden in the form of interest on 
debt." But he saw the specter of continental 
money, and for that and other reasons preferred 
his second plan, i. e.. National bank notes. 

On or just prior to December 31, 1 86 1, all the 
banks then doing business suspended specie pay- 
ments, and notes of any kind " payable in coin on 






demand" were postponed into the indefinite 
tuture. The war was to be prosecuted, if at all 
with an irredeemable paper currency. 

At that time the outstanding bank circulation 
was $183,000,000 and their specie reserve $102 000 - 
000 ("Money in Politics," by J. K.Upton, late Assist- 
ant Secretary of the Treasury, p. 74). The banks 
of New York alone, according to the president of 
one of them then held over $40,oo«,ooo in specie 
( Money, Its Laws and History," by H V Poor o 
56.). Mr. Blaine ("Twenty Years in Congrei/' 
Vol. I, Chap. 19) said: " At the opening of the 
year 1862 the Government finances were in a crit 
ical condition. Confederate bonds were more 
popular in England than the bonds of the United 
^\T' '^l^^.^^^'^ers of Europe, with the Roths- 
childs at their head, would not touch our securi- 
ties We were thrown on our own resources. 
With one hundred millions of coin in the banks 
and one hundred and fifty millions hoarded 
among the people, it was obviously impossible to 
conduct the business of the country and to carrv 
on the war in cash payments." 

The coinage of gold at the mint prior to 1862 
jas $545,150,625.50, or about $540,000,000 after 
deducting recoinages ; in silver there was onlv 
that coined during the period 1853-61, to wit 
$49,642,031 in fractional silver tokens. About 
$340,000,000 in gold coin had been expelled from 
the country previous to 1862, by stuffing the 
currency with State bank notes. The eagles on 

this amount of gold coin had flown away to the 
same roost abroad to which the ** dollars of the 
daddies" had previously resorted. Had all the 
gold and silver coined previous to 1862 remained 
in the country, and there had been no bank notes, 
it would not have been so obviously impossible to 
maintain specie payments during the war. During 
the period 1862-5 there was coined at the mint, in 
gold, $91,698,032, and in silver $3,362,706, being 
of the domestic product during that time. 

The panic of 1857 had thinned out the bank- 
note currency. But if the banks doing business 
on December 31, 1861, had a circulation of $183,- 
ocx),ooo and a specie reserve of $100,000,000, it was 
manifestly dishonest for them to suspend specie 
payments and hold the coin for sale thereafter at 
a premium. They never resumed payment in coin. 
They locked up their specie as a " precautionary 
measure ! ** 

When the demand notes were first issued in 
August, 1 86 1, the associated banks refused to 
receive them except on special deposit. And in 
January, 1862, after specie payments were sus- 
pended, the associated banks resolved that before 
we receive the demand notes on deposit we must 
require that such legal provision be made by 
Congress as shall insure their speedy redemption 
(" United States Notes," Knox, Chap. 9.) These 
notes competed with their bank notes as a circu- 
lating medium, were receivable for duties on 
imports and all public dues, while their suspended 



bank notes were not legally receivable for any- 

In February, 1862, 6 per cent United States 
bonds were selling in the market at 88, and 5 per 
cents at y^yi (" United States Notes," Knox, p. 97), 
and these prices were in depreciated bank notes! 
Greenbacks. By the act of February 25, 1862, 
the Secretary of the Treasury was authorized 
to issue $150,000,000 of United States notes 
(greenbacks), not bearing interest, paj^able to 
the bearer at the Treasury of the United 
States, of such denominations, not less than 
$5, as he might deem expedient, which notes 
were made receivable in payment for all dues 
to the United States except duties on imports, 
and of all claims and demands against the 
United States except for interest on the public 
debt, which shall be paid in coin, and which notes 
were made lawful money and a legal tender in 
payment of all debts, public and private, within 
the United States, except duties on imports and 
interest as aforesaid ; the notes to be fundable into 
6 per cent bonds ; to be received at their par value 
in payment for any loans thereafter negotiated ; 
and to be reissued from time to time as the exi- 
gencies of the public interest may require. 

And to enable the Secretary to fund the Treas- 
ury notes and floating debt he was authorized to 
issue and sell not exceeding five hundred millions 
of 6 per cent five-twenty bonds. 

And the act further provided that duties on 



imported goods should be paid in coin or in the 
demand notes theretofore authorized, which coin 
should be a special fund to be applied first to the 
payment in coin of interest on the public debt^ 
and secondly as a sinking fund, etc., as in the act 

In pursuance of this financial policy all interest 
on the funded debt was regularly paid in coin. 

In January, 1862, after the bill was introduced 
in Congress which resulted in the act above re- 
ferred to, the associated banks of Boston, New 
York, and Philadelphia sent a powerful lobby to 
Washington to oppose it and the schemes of the 
Secretary. In his report he had proposed to na- 
tionalize the currency. The whole State bank 
system was opposed to it, and were violently op- 
posed to all irredeemable paper money except 
their own. The offer of the National bank system 
under National control failed to placate banks 
whose issues were under less control. They pro- 
posed a plan, to wit : No legal-tender notes and 
no more demand notes ; the Government to be- 
come one of their customers and keep its deposits 
with them, checking out the money as occasion 
might require ; bonds to be issued and sold for 
whatever they might bring, with power in the 
Secretary to hypothecate bonds as security for 
loans, which, if not paid at maturity, the bonds 
might be sold to the highest bidder. All the 
banks in the States of Massachusetts, New York, 
and Pennsylvania then had a circulation of about 





$66,ooo,cxx), and this they either could not or 
would not redeem. The expenses of the war 
were then running on an average of $2,000,000 
per day. (" History of the Legal Tender Paper 
Money," etc., by E. G. Spaulding, chairman of 
the Sub-committee of Ways and Means at that 
time.) The plan of these confederate banks 
failed and their officers went home, not to pay 
their suspended paper money, but to inflate it. 
State bank notes in the war of 181 2 had "para- 
lyzed the National arm and sullied the faith, both 
public and private, of the United States.'' In 
the crisis of 1861-65, the men at the helm did not 
intend to allow the National cause to be swamped 
by State bank money. 

The Secretary of the Treasury (Mr. Chaser, in a 

letter addressed to Mr. Stevens, chairman of the 

Committee of Ways and Means, after expressing 

his great aversion to making anything but coin a 

legal tender in payment of debts, said: "It is, 

however, at present impossible, in consequence of 

the large expenditures entailed by the war, and the 

suspension of the banks, to procure sufficient coin 

for disbursements ; and it has, therefore, become 

indispensably necessary that we should resort to 

the issue of United States notes. The making 

them a legal tender might still be avoided, * * 

but unfortunately some persons and institutions 

refuse to receive and pay them," etc. And in a 

letter to Mr. Spaulding, dated February 3, 1862, 

the Secretary said : " It is true that I came with 



reluctance to the conclusion that the legal-tender 
clause is a necessity, but I came to it decidedly 
and I support it earnestly. * * The Treasury 
is nearly empty. I have been obliged to draw for 
the last installment of the November loan ; so 
soon as it is paid, I fear the banks generally will 
refuse to receive the United States notes. You 
will see the necessity of urging the bill through 

without more delay-" 

In the debate on the bill, Mr. Hooper, one of 
the committee of Ways and Means, said in the 
House : " The levying of the contemplated tax, 
the proper inauguration of the new banking 
system, and the successful negotiation of a new 
loan are matters that will require time. In the 
meantime the treasury is comparatively empty, 
and the demands of the Government are numer- 
ous and pressing. * * * There is a necessity 
for money, and the object of the authority to issue 
$150,000,000 of United States notes is to pay 
the creditors of the United States and enable 
them to discharge their debts. The propositions 
of committees from boards of trade and banks, 
which recently visited Washington, differed from 
the theory of this bill so far as to require that 
instead of the issue of the United States notes 
the banks should be relied upon to furnish the 
amount needed. The effect of this would be 
that the Government bonds must first be disposed 
of, without restriction as to the rate or terms, 
taking the notes of suspended banks in payment 



of these bonds, and with these bank notes pay off 
the contractors. The obvious effect of such an 
arrangement would be to put the reins of our 
National Government in the hands of the banks 
Exactly upon what terms the Government bonds 
could now be disposed of, no one can say but 
last summer, when the banks made their negotia- 
tion with the Secretary of the Treasury, they at 
first refused to do anything because the Secretary 
was restricted by law to taking par for 7 per cent 
bonds, payable in twenty years, and for 7.3 Treas- 
ury notes payable in three years. They finally 
decided, with great reluctance, to take $100,000,000 
of the latter, though at the time money was not 
worth for commercial purposes more than 5 per 
cent. In the war of 1812 the Government paid 
for Its supplies with funds obtained from the 
banks in the manner as proposed in the plan 
recently submitted to the Secretary by those com- 
mittees. The bonds of the United States were 
then negotiated in some instances at 20 per cent 
less than their par value, and paid in bank cur- 
rency of different degrees of depreciation, accord- 
mg to locality, but averaging from 20 to 25 per 
cent discount as compared with coin. * * * We 
shall probably be told that England, in her great 
struggle while specie payments were suspended, 
never made paper money a legal tender, * ♦ 
but instead of doing this she did worse by sus- 
pending the laws to enforce payment of debts in 
cases where the paper money had been refused 



as a tender." C' History of Legal Tender Notes," 
by E. G. Spaulding, p. 54.) 

Trustworthy reports from eighteen different 
States show that in i860, out of 1,230 banks, 140 
were broken, 234 closed, and 131 worthless. There 
were in existence at that time 3,000 kinds of 
altered notes, 1,700 varieties of spurious notes, 460 
varieties of imitation, and over 700 of other kinds 
more or less fraudulent. The various kinds of 
genuine bills in circulation were about 7,000. 
The use of bank-note detectors was necessary in 
order to ascertain the genuineness of notes, and 
the solvency, or the existence even, of the banks 
of which they purported to be the issue. (" Money 
and Politics," Upton, p. 112.) 

In 1 862 all the banks were in a state of suspen- 
sion. Without a reliable bank-note detector of 
the latest issue, no one, although an expert, could 
have discovered whether the "rags and lamp- 
black" offered to him were worth anything at all 
or not. Dishonored, depreciated, and doubtful 
bank notes would have been poor stuff to offer the 
Union soldier for his blood. 

The demand notes were made a legal tender 
by the act of March 17, 1862. When first issued, 
although they were receivable for all public dues 
and were paid in coin on demand, the State banks 
refused to receive them as current money, because 
these notes competed with their issues and 
impaired their monopoly of the paper currency. 
But they were compelled to accept legal tenders 



in payment of debts due them and were thereby 
forced to treat them as current money. But bank- 
ers have never ceased to rail at the greenbacks, 
because the people get the benefit of this paper 
circulation, and not them. If they could issue 
paper money, and greenbacks were not a legal 
tender, they would soon cease to be bankable, and 
be thereby crowded out of circulation. 

A greenback is a promise to pay dollars without 
saying when. At first, it meant payment in coin 
when the Government was able ; and the people 
made it able. Since January i, 1879, the United 
States note has meant payment in gold on de- 
mand. To the people it was always acceptable, 
at home or in the field— also to the rebels. Its 
only enemies were, and are, the friends and 
issuers of bank notes. 

An additional amount of $150,000,000 in legal 
tender United States notes was authorized July 
II, 1862, of such denominations as the Secretary 
of the Treasury might deem expedient; but none 
to be issued for the fractional part of a dollar, 
and not more than $35,000,000 of lower denomi- 
nations than $5. Not less than $50,000,000 to be 
reserved and held to secure prompt payment of 
the temporary deposits mentioned in the act, and 
to be issued and used only when needed for that 

By a joint resolution approved January 17, 
1863, to provide for the immediate payment of 
the army and navy, the Secretary of the Treasury 



was authorized, if required by the exigencies of 
the public service, to issue an additional $100,- 
000,000 of legal tender United States notes, of 
such denominations not less than $1 as he may 
prescribe. This amount was increased to $150,- 
000,000 by the act of March 3, 1863. 

Mr. Lincoln, as President, in giving his 
approval to this joint resolution, said: "While 
giving this approval, however, I think it my duty 
to express my sincere regret that it has been 
found necessary to authorize so large an addi- 
tional issue of United States notes when this cir- 
culation and that of the suspended banks together 
have become already so redundant as to increase 
prices beyond real values, thereby augmenting 
the cost of living, to the injury of labor, and the 
cost of supplies, to the injury of the whole coun- 
try. It seems very plain that the continued issue 
of United States notes, without any check to the 
issues of suspended banks, and without adequate 
provision for the raising of money by loans, and 
for funding the issues so as to keep them within 
due limits, must soon produce disastrous conse- 
quences. That Congress has' power to regulate 
the currency of the country can hardly admit of 
a doubt ; and that a judicious measure to prevent 
the deterioration of this currency, by a reasonable 
taxation of bank circulation or otherwise, is 
needed, seems equally clear. Independently of 
this general consideration, it would be unjust to 

the people at large to exempt banks enjoying the 





special privilege of circulation from their just 
proportion of the public burdens.** 

Mr. Blaine (** Twenty Years in Congress,'* Vol. 
I, Chap. 22) said : " The Secretary of the Treasury 
had not failed to see that a constant conflict and 
damaging competition must ensue between the 
currency of the nation and the currency of State 
banks. It was the course of the banks more than 
any other agency that had discredited the demand 
notes, and demonstrated the absolute necessity of 
imparting the quality of legal tender to the paper 
issued by the Government. As this paper took 
the place of gold and silver in all payments 
except duties on imports and interest on the pub- 
lic debt, it was easy for the State banks to extend 
their circulation, which they did to a dangerous 
extent. The enactment of the legal-tender bill 
had not, therefore, given the control of the cur- 
rency to the Government. It had only increased 
the dangers of inflation by the stimulus it 
imparted and the protection it afforded to the 
circulation of State bank notes." 

But the war declared by Secretary Chase 
against this kind of Confederate money was very 
feebly conducted by him. The National bank 
act of 1863 imposed a tax of 2 per cent annu- 
ally on the circulation of National and none 
on that of State banks ; but a similar and lighter 
tax was imposed on the latter by the act of 
March 3, 1863. The National bank act of June 
3, 1864, taxed both kinds of bank notes alike. 



And it was not until the act of March 3, 1865, 
amendatory to prior internal revenue acts, that a 
tax of 10 per cent was imposed on the amount 
of State bank notes paid out after July i, 1866. 
Lee surrendered to Grant April 9, 1865, and the 
war ended soon thereafter. 

National Bank Notes. Although a dollar in 
coin was worth from $1.28^ to $1.34 in paper 
money in December, 1862, Secretary Chase 
urged his National bank scheme upon Con- 
gress, and the bank act of February, 25, 1863, 
was passed by a small majority. The scheme 
failed to furnish a market for bonds. Up to 
December 10, 1863, 134 banks had been organ- 
ized under the act, chiefly in the West, with 
an aggregate capital of $16,000,000. The people 
took the first five hundred million loan of 6 per 
cent bonds at par, in paper money, in the summer 
of 1863. More recently, Mr. Cleveland found that 
the people could be relied upon to take a loan 
when directly offered to them. 

At the instance of Secretary ChavSe, the bank 
act of 1 863 was revised, amended, and reenacted 
June 3, 1864, during which month a dollar in coin 
was worth from $1.93 to $2.50 in paper money. 
Bank notes not exceeding in amount $300,000,000 
were to be issued to the banks organized under 
it, they to deposit United States bonds with the 
Treasurer of the United States, and thereupon 
receive from the Comptroller of the Currency 
notes not exceeding 90 per cent of the amount of 



the bonds at the par value thereof, if bearing 
interest at the rate of not less than 5 per 
cent per annum, such notes to be of denomina- 
tions of $1, $2, $3, $5, $10, $20, $50, $100, $500, 
and $1,000; not more than one-sixth of the notes 
to be of less denominations than $5, and, after 
specie payments were resumed, none to be less 
than $5. The notes were made redeemable in 
lawful money, and also " shall be receivable at 
par in all parts of the United States in payment 
of taxes, excises, public lands, and all other dues 
to the United States, except duties on imports, 
and also for salaries and all other debts and demands 
owing by the United States to individuals, corpo- 
rations, and associations within the United States, 
except interest on the public debt and in redemp- 
tion of the National curency." It seems, therefore, 
that Mr. Chase thought a bank note could be 
made a lawful tender from as well as to the Gov- 
ernment, although as Chief Justice he denied the 
power of Congress to make a United States note 
a legal tender. The National bank notes were 
made a forced currency, probably because it was 
feared that they would not circulate without it. 

By the act of July 12, 1870, the limit was 
increased from three hundred to three hundred 
and fifty-four millions, and still further by the 
act of January 14, 1875. 

The independent Treasury act of August 6, 
1846, proved to be the financial salvation of the 
Government in the Civil War, which was com- 



menced on a specie basis, and duties payable in 
coin furnished the means to pay interest on the 
public debt in coin. But by the above-mentioned 
acts, bank notes redeemable in nothing except 
greenbacks were bred and nursed in the Treas- 
ury, and made a legal tender to and from the 
Government, as above stated. 

Mr. Chase left the Treasury June 7, 1864, and 
Mr. Fessenden became his successor July 5, 1864. 
In his report of December 6, 1864, he said: 
"The necessities of former years have led to 
many expedients, as is apparent from the diversity 
of forms which our securities present. As the 
debt increases from year to year, borrowing be- 
comes more difficult. Embarrassed as the country 
is with two systems of banking, and obstructed as 
the Government is by a currency wholly beyond 
its control, it is manifest that to push its own cir- 
culation far, if at all, beyond its present limit, 
could only be justified by extreme necessity. The 
returns on file show that the whole circulation of 
the State banks on January i, 1864, was $169,916- 
129. The total amount issued to National banks, 
to November 22, 1864, was $65,160,210. The 
diminution of State bank issues deducted from 
the National bank issues left an increase of over 
$21,000,000 in bank circulation during the year. 
Under these circumstances, the Secretary thought 
it advisable, in order to meet pressing emergencies, 
to borrow, upon bonds or notes authorized by the 
different acts referred to, $50,000,000 of the banks 





of the cities of New York, Philadelphia, and Bos- 
ton, and met the representatives of a large num- 
ber of these institutions in New York. The 
result proved, however, that notwithstanding a 
professed and, as the Secretary was convinced, a 
reasonable desire to aid the Government, these 
institutions were not able to furnish the assist- 
ance required upon any terms which, under exist- 
ing provisions of law. the Secretary felt authorized 
to accept." 

The State banks had inflated their suspended 
paper, and were either unable or unwilling to 
make a loan of fifty millions on any lawful terms. 
The State and National banks were then reaping 
a profit of not less than fourteen millions annu- 
ally from their circulation. It was choking 
the channels of circulation to the prejudice 
of the National cause. Every artifice had 
been used to keep down inflation by the issue 
of interest-bearing paper, such as seven-thirty 
notes. 6 per cent compound interest notes, cer- 
tificates for temporary loans and of indebtedness 
bearing 6 per cent interest. The times were 
critical. During the summer of 1864 Sherman 
was fighting Johnson among the mountains of 
Georgia ; Grant was fighting Lee on the road to 
Richmond. In July, 1864, gold reached its high- 
est point, to wit : $2.85 in paper. Now it is 
obvious that if there had been no bank notes, and 
in lieu thereof there had been United States notes, 
the inflation would have been no greater. This 



would have given the Treasury $235,076,339 of 
additional funds, bearing no interest. The Sec- 
retary would not have felt compelled to apply to 
a set of shylocks for a loan, and be refused. The 
nation was fighting for life, and was forced to 
fight on credit and pay high rates of interest. At 
the same time the banks were stuffing the cur- 
rency with their bank notes for private gain, and 
did this in a great National crisis involving the 
country's fate. Sherman took Atlanta September 
I, 1864, and then marched to the sea. The war 
was at an end in the spring of 1865. 

The Public Debt. The union forces were paid off 
and mostly discharged during the summer of 1865. 
The public debt was at its maximum August 31, 
1865, to wit: $2,845,907,605, of which $1,109,586,191 
was in funded debt; about a million and a half in 
matured debt; something over two millions in 
suspended requisitions, and the residue was : 

United states legal- tender notes $ 433.160,569 00 

Compound interest legal -tender notes 217,024,160 00 

Five per cent legal-tender notes 33.954.230 00 

Seven-thirty notes 830,000,000 00 

Fractional currency 26,344,742 51 

Temporary loans 107,148,713 16 

Certificates of indebtedness 85 ,093,000 00 

Total floating debt $1,732,725,414 67 

("United States Notes," Knox, Chap. 9.) 

On June 30, 1865, there was in circulation State 
bank notes to the amount of $142,919,638, and 
National bank notes to the amount of $146,137,- 
860; total of bank notes, $289,057,498 (Statistical 






Abstract of the United States for 1887, P- 22), 
all of which were redeemable in nothing unless 
in greenbacks. No one can doubt that these bank 
notes inflated and depreciated the currency quite 
as much as the same amount in United States 
notes would have done. 

Contraction. Mr. Fessenden had been succeeded 
by Mr. McCulloch as Secretary of the Treasury. 
He had been a banker in Indiana : also Comp* 
troller of the Currency under the bank act of 1 864, 
and was an ardent promoter of the National bank 
scheme, and an enemy of greenbacks. In his 
report of December 4, 1865, he said : "The reasons 
sometimes urged in favor of United States notes 
as a permanent currency are the saving of interest 
and their perfect safety and uniform value. The 
objections to such a policy are that the paper 
circulation of the country should be flexible, 
increasing and decreasing according to the re' 
quirements of legitimate business, while if fur- 
nished by the Government it would' be quite 
likely to be governed by the necessities of the 
Treasury or the interest of parties rather than 
the demands of commerce and trade." And he 
was urgent to have power given him to sell 
interest-bearing bonds for the purpose of retiring 
greenbacks, and by the act of April 12, 1866, was 
authorized to retire ten millions within six 
months, and thereafter at the rate of four millions 
a month. 

On and after August 31, 1865, there was a float- 

ing debt of over $1,273,000,000, two-thirds of 
which bore interest at 7.3 per cent per annum, 
and the residue at 6 per cent, excepting a small 
amount bearing interest at 5 per cent. This mass 
of matured and rapidly maturing indebtedness 
was large enough to keep any ordinary financier 
quite busy in funding it. Probably the interest- 
bearing legal-tender notes furnished an attractive 
reserve for his pet banks. 

But the retiring of greenbacks was stopped, 
and finally, by an act of May 31, 1878, it was pro- 
vided that it should not be lawful for the 
Secretary of the Treasury, or other officer under 
him, to cancel or retire any more of the United 
States legal-tender notes ; and when the same may 
be redeemed or received into the Treasury under 
any law or from any source whatever, and shall 
belong to the United States, they shall not be 
retired, canceled and destroyed, but they shall be 
reissued and kept in circulation ; new notes to be 
issued for mutilated ones, which were thereupon 
to be canceled and destroyed. Their amount 
then was and now is $346,681,016, less the amount 
lost or destroyed by use and accident. 

On June 30, 1878, National bank notes amounted 
to $324,514,284, and on June 30, 1882, had in- 
creased to $358,742,034 (Statistical Abstract for 

1887, p. 22). 

During the war and since, the people were 
taxed to pay interest in gold on the bonds held to 
secure payment of these notes in greenbacks, and 




in addition the banks have reaped a profit 
annually of millions upon the notes in discounting- 
commercial paper, in consideration of which these 
banks have assisted in inflating and depreci- 
ating the currency. Also a bureau was erected 
in the Treasury, with a Comptroller of the Cur- 
rency at its head, for the purpose of nursing and 
managfing this unjust scheme. 

The average circulation of the State and 
National banks taken together, from 1862 to 1890, 
was over three hundred millions of dollars. If 
their place had been occupied by United States 
notes, the paper inflation would have been no 
greater during the war, and the resumption of 
specie payments afterward would have been quite 
as easy. The limit of paper inflation was fast 
approaching in 1864, and it is obvious that the 
risk of financial collapse would have been less if 
State bank notes had been taxed out of existence 
immediately after 1861 and no National bank 
notes had been issued. By using the above addi- 
tional amount of their own notes during the above 
period, the people would have saved in interest 
on debt, at 4 per cent only, payable quarterly 
and compounded, over five hundred and seventy- 
five millions of dollars. 

Elasticity. The advocates of bank notes insist 
that a currency ought to be elastic, ^'increasing 
and decreasing according to the requirements of 
legitimate business," provided, however, the 
issuers of the notes possess the exclusive power 



to work the "elasticity," and to decide what busi- 
ness is legitimate. This and other arguments in 
favor of bank notes are frivolous ; the profit which 
can be made on them is the real "milk in this 
cocoanut." For example, if National banks, as in 
1882, can lend or exchange $358,742,034 of their 
bank notes bearing no interest, for commercial 
paper at the current rate of bank discount, then 
their annual profit, assuming it to be 6 per cent, is 
$21,524,522, less a tax of i per cent per annum 
on the notes, and which is deemed by them to be 
a grievous burden. The money which the notes 
represent is in Government bonds, and is also 
drawing interest. 

But these National bank notes are too "inelas- 
tic" to suit the advocates of bank notes. They 
want to issue a " credit " currency, say not less 
than $3 in paper for one in specie, actually or 
theoretically held in reserve for their redemption. 
They want to draw interest upon three or more 
dollars, all of which are wind except the dollar in 
specie held for their redemption, or supposed so 

to be. 

Mr. Biddle, president of the Second Bank of 
the United States, understood elasticity quite as 
well as Mr. McCulloch. There was great rivalry 
between this bank and the State banks as to 
which should supply and control the paper circu- 
lation of the country. And Mr. Biddle, probably 
for the benefit of the State banks, published in 
April, 1828, an essay in answer to the question: 





What is the cause and nature of the present 
scarcity of money? His answer being, in sub- 
stance, overtrading brought on by overbanking. 
He said : " The constant tendency of banks is to 
lend too much and to put too many notes in cir- 
culation, which causes a rise in the price of com- 
modities. This causes large importations, while 
the high price of domestic products prevents their 
exportation. When you buy more from foreign- 
ers than they buy from you, as they can not take 
the paper part of your currency they must take 
the coin part. If a bank lends its money for long 
terms and to persons careless of protests, it runs 
great risk ; on the one hand its notes are payable 
on demand, while on the other its debts can not 
be called in without great delay. But a well- 
managed bank has its funds mainly on short 
loans to persons in business, payable on a day 
named, which the parties are able to pay and will 
pay at any sacrifice in order to escape mercantile 
dishonor. Such a bank has its funds constantly 
repaid to it and is able to say whether it will or 
will not lend them out again. Such a bank, 
when it finds there is too much demand for coin, 
declines to renew the loans of its debtors. Thus 
they are obliged to return the bank notes lent 
them or their equivalents. This makes bank 
notes scarcer and more valuable— this makes 
goods less valuable— the debtors in their anxiety 
to get bank notes sell their goods at a sacrifice— 
this brings down prices and makes everything 



cheaper, and finally stops importations, the 
demand for coin," etc. ("Gouge on Banking," pub- 
lished in 1833, Part H, p. 189.) 

According to Mr. Biddle, an elastic currency 
first expands by liberal issues of bank notes; 
prices rise, inducing importation and preventing 
exportation; speculation is rife, and everybody 
flies high on the wings of credit. But the ex- 
portation of coin puts a limit to the expansion ; the 
bag of wind becomes liable to explode. Then the 
" well-managed banks," who have made their loans* 
on short time to men who will pay at any sacrifice, 
insist upon payment and refuse to renew their 
loans. The elastic currency contracts, prices fall, 
debtors force their goods on the market and im- 
poverish themselves to meet their notes ; but the 
" well-managed banks " get out with whole skins, 
while their customers are flayed alive. The 
other banks suspend payment and many of them 
prove to be insolvent ; their notes fall to discount 
or become worthless. According to the ethics of 
banking, the only suspension of payment which 
is justifiable under any state of facts whatever is 
a bank suspension. 

Mr. Biddle also said: "The substitution of 
credits for coin enables the nation to make its 
exchanges with less coin, and of course saves the 
expense of coin." If the "credits" were in the form 
of United States notes the nation might make 
the saving, but when the "credits" are in the 
form of bank notes the banks make it. These 






printed pieces of paper cost them a nominal sum, 
but cost the borrower and those who otherwise 
acquire them the same as coin. The banks charge 
the same interest on them as if the loan were 
made in coin. After money is made artificially 
scarce, as above, all the debtor can hope for is to 
save his name and credit from dishonor by the 
sacrifice of his property ; if he does not sell it 
himself the sheriff will finally do it for him. 
When the banks, the Second United States Bank 
included, suspended specie payment, the nation 
enjoyed the benefit of a currency consisting of 
bank notes at a variable discount, depending upon 
the supposed solvency of the bank issuing it, and 
thereby, perhaps, saved the expense of coin alto- 

As shown by Mr. Biddle, no matter how many 
notes banks are authorized to issue, if they are 
loaned on long time or to persons who are unable 
or unwilling to pay their debts when due, the 
currency is not elastic, for that quality includes 
contraction as well as expansion. The present 
National banks thrust their notes into the cur- 
rency when received, as far away from home as 
possible, and cry for more ; they also lend out as 
large a per cent of their deposits as the law will 
allow ; therefore, in the direction of expansion, the 
present currency is quite elastic. But unless 
their loans are made on short time to persons 
who will pay at any sacrifice, the currency is in- 
elastic in the direction of contraction. When 



they have brought on, or made imminent, a finan- 
cial panic by lending too large a per cent of 
their deposits on long or short time, with a nar- 
row margin on the collaterals, and have sur- 
rounded themselves with flocks of lame ducks, 
they expect the Jupiter who officiates as the 
Comptroller of the Currency to nod and to wink 
at their bogus clearing-house certificates. If 
these institutions would hold their notes in re- 
serve for such an emergency, the sudden expan- 
sion of the currency at that time by their issue 
might avert the impending panic brought on by 
their excessive greed. 

The lo per cent tax on State bank circulation 
exterminated State bank notes, but not State 
banks. These banks are not obliged to report to 
the Comptroller of the Currency. But from his 
report for 1896, Vol. I, p. 16, the condition of 3,705 
State banks reporting to him showed the follow- 
ing items: Capital, $240,i33»835 ; deposits, $695,. 
659,914; loans, $702,505,798; stocks and bonds, 
$97,234,561 ; also, 1,195 State banks, with an aggre- 
gate capital of $87,985,913, reported dividends 
paid of $5,985,222, the average being 6.8 per cent ; 
also, loan and trust companies to the number of 
115, with capital of $52,715402, paid dividends 
amounting to $5,254,200, an average of 9.9 per 
cent. Of the savings banks 1,299 reported depos- 
its, $1,935,466,468, of which $1,907,156,277 were 
savings deposit accounts; loans, $1,055,187,769; 
United States bonds, $148,525,375; other bonds 



« V 

and stocks, $756,676,312; surplus and undivided 
profits, $174,714,993. Such is the showing of 
these concerns during a period of hard times 
ensuing the panic of 1893. There are also 
numerous private banks, some of them very 
large, e. g. the leading exchange houses. 

This statement proves that it is not necessary 
to hire people, with or without capital of their 
own, to engage in the legitimate business of 
banking, by authorizing and assisting them to 
establish paper-money factories to be operated in 
competition with the Government mint. 

The proper office and function of a bank is to 
reduce the currency and not to increase or dilute 
it. Having a capital in money not of its own 
manufacture, others deposit money with it, rely- 
ing upon its solvency. There is a book account 
between it and each of its customers, each of 
whom, to the extent of his credit, can purchase 
property and pay his debts by checks and bills 
drawn on the bank. These are deposited by 
those who receive them with the same or some 
other bank. The various banks settle their 
respective claims upon each other by an exchange 
of the checks and drafts drawn on them respect- 
ively, paying any balances in money, which are 
usually merely nominal sums. Thus the great 
mass of moneyed transactions are settled by an 
adjustment of mutual accounts. Great financial 
centers operate as clearing houses for large dis- 
tricts of country, New York being the financial 

W : 



center tor this country, and London for Great 
Britain, and indeed for the whole commercial 
world. By the legitimate use of credit, banks 
facilitate exchanges and thereby greatly reduce 
the quantity of money which would be otherwise 
required. The more metallic the currency the 
better fitted it is as a basis for these credit trans- 
actions. The preeminence of London as the 
great financial center is largely due to the fact 
that a debt payable there is certain to be paid, if 
at all, in gold coin of a fixed weight and fineness. 

A bank with an actual capital of its own and 
the average amount of its deposits has an ade- 
quate fund to operate with. In fact, such banks 
eagerly solicit deposit accounts, and many of them 
pay interest thereon, thereby paying depositors a 
bonus for the privilege of keeping their money 
safely and paying it to them on demand, or at 
least agreeing to do it. The profits are so great 
that a law is necessary to prevent them from 
lending too large a per cent of their deposits, and 
a law to prevent them from paying interest on 
deposit balances which are payable on demand 
would probably be beneficial. A bank which 
can not make a profit out of its actual capital and 
deposits has no right to exist. 

Fractional Paper Curratcy. By the summer of 
1862 the paper inflation caused the fractional silver 
coins to disappear from circulation. Under the 
coinage act of 1853 their bullion value was about 
7 per cent less than standard coin. Postage 





and other United States stamps were made frac- 
tional currency, in lieu of which fractional notes 
were authorized by act of March 3, 1863. In 1877 
the premium on specie had fallen so that frac- 
tional silver coins could be and were substituted 
for the fractional notes. 

The population of the United States in i860 
was 31,443,321, of which, in 1861, about one-third 
were in rebellion, so that the currency required, 
under the facts then existing, was for a population 
of about twenty-one millions ; in 1865, for a pop- 
ulation of about thirty-four millions ; in 1 870, for 
a population of 38,558,371 ; in 1880, for a popula- 
tion of 50,155783- 

The inflation of the currency excluded coin ; 
the contraction of the currency reduced prices so 
that specie payments could be and were resumed 
January i, 1879, ^^ which time and since green- 
backs have been redeemed in coin (gold) on pre- 
sentation for that purpose at the office of the 
Assistant Treasurer of the United States in the 
city of New York, in sums not less than $50. 

The paper inflation during the war caused 
prices to rise, i. e., the exchange value of money 
to fall. The Government was a great employer, 
buyer, and consumer ; wages were high, also com- 
modities. The ranks of the army could be filled 
by paying large bounties, after the ardor for vol- 
unteering was past. But after the war was ended 
the case was reversed. The Government no 
longer needed an immense army and navy. Con- 




traction involves falling prices, failing debtors, 
and a decrease in the army of speculators. No 
financier has ever invented a successful financial 
scheme which will cause prices forever to rise 
and never to fall or collapse. A money inflation 
produces financial intoxication, which, after the 
"spree" is over, results in reaction, stagnation, 
collapse, and the blue devils. After the panic 
of 1873, an inflation of the paper currency was 
prevented by a veto from President Grant. 

A single gold standard ^diS adopted by the act of 
February 12, 1873, "revising and amending the 
laws relative to the mints, assay offices, and coin- 
age of the United States." It authorized certain 
coins therein named, and none other; the stand- 
ard silver dollar was not one of them. Its 
metallic value then was a little more than a dollar 
in gold, the commercial ratio of silver to gold then 
being 15.92 to i. This act adopted a policy which 
had its inception in the act of 1834 and declared 
the gold dollar of the standard weight of 25.8 
grains to be the unit of value. 

The coins thereby authorized, and still issued, 


Gold. Double eagle, eagle, half eagle, quarter 


Silver. Half dollar, quarter dollar, dime. 

Nickel. Five-cent piece — 75 percent copper 
and 25 per cent nickel. 

Bronze. Cent— 95 per cent copper and 5 per 
cent tin and zinc. 




i I 

The provisions relating thereto as contained in 
the revised statutes of 1 874 are chiefly as follows : 

The standard for both gold and silver coins is 
nine-tenths fine. 

The standard weight of the double eagle, or 
twenty-dollar piece, is 516 grains; of the other 
gold coins in proportion; of the half dollar, i2j4 
grams (192.9 grains); of the quarter dollar and 
dime, in proportion thereto. 

Tolerance. No ingots to be used for coinage 
which shall differ from the legal standard more, 
in gold ingots, than 0.00 1 ; silver ingots, 0.003 J 
five-cent piece, 0.025, in the proportion of nickel. 
In adjusting the weight of the coins the follow- 
ing deviations shall not be exceeded in any single 
piece: In the double eagle and eagle, half a 
grain; half and quarter eagle, one-fourth of a 
grain ; half and quarter dollar and dime, one and 
one-half grains ; five-cent piece, three grains ; cent, 
two grains'. 

Devices and Legends. On one side there shall 
be an impression emblematic of liberty, with an 
inscription of the word '* Liberty " and the year 
of the coinage, and upon the reverse shall be the 
figure or representation of an eagle, with the in- 
scriptions "United States of America" and '* E 
Pluribus Unum," and a designation of the value 
of the coin ; but on the dime, ^v^ and one cent 
pieces the figure of the eagle shall be omitted. 

Legal Tender, No foreign gold or silver coin 
shall be a legal tender in payment of debts. 



The gold coins of the United States shall be a 
legal tender in all payments at their nominal 
value when not below the standard weight and 
limit of tolerance provided by law for the single 
piece, and when reduced in weight below such 
standard and tolerance, shall be a legal ten- 
der at valuation in proportion to their actual 

The silver coins of the United States shall be 
a legal tender at their nominal value for any 
amount not exceeding five dollars in any one pay- 
ment ; since raised, as to the fractional silver coins, 
to ten dollars. 

The minor coins of the United States shall be 
a legal tender, at their nominal value, for any 
amount not exceeding twenty-five cents in any 
one payment. 

Abrasion, Any gold coins of the United States, 
if reduced in weight by natural abrasion not more 
than one-half of i per cent below the standard 
weight prescribed by law, after a circulation of 
twenty years, as shown by the date of coinage, 
and at a ratable proportion for any period less 
than twenty years, shall be received at their nomi- 
nal value by the United States Treasury and its 
officers, under such regulations as the Secretary 
of the Treasury may prescribe for the protection 
of the Government against fraudulent abrasion or 
other practices. 

Any gold coins in the Treasury when reduced 
in weight by natural abrasion more than one-half 



' 9 

. , 


; { 

of I per centum below the standard weight pre- 
scribed by law, shall be recoined. 

The coinage of standard gold bullion is free 
and gratuitous (act of January 14, 1875). The 
coinage of the fractional silver and minor coins 
is done on Government account. 

The minor coins are redeemed at the Treasury 
and its offices in lawful money when presented in 
sums of not less than twenty dollars ; when it ap- 
pears therefrom that the amount outstanding is 
redundant, the Secretary of the Treasury is re- 
quired to direct that their coinage shall cease 
until otherwise ordered by him. 

The fractional silver coins are redeemed in law- 
ful money at the office of the Treasurer or any 
Assistant Treasurer when presented in sums of 
twenty dollars or any multiple thereof, and are 
exchanged in like manner for lawful money on 
demand. (Act of June 9, 1 879.) 

The value of foreign coin^ as expressed in the 
money of account of the United States, shall be 
that of the pure metal of such coin of standard 
value ; and the values of the standard coins in 
circulation of the various nations of the world 
shall be estimated annually by the Director of the 
Mint and be proclaimed on the first day of Janu- 
ary by the Secretary of the Treasury. In all pay- 
ments by or to the Treasury, whether made here 
or in foreign countries, when it becomes neces- 
sary to compute the value of the sovereign or 
pound sterling, it shall be deemed equal to 



$4.8665, and the same rule shall be applied in 
appraising merchandise imported where the value 
is, by the invoice, in sovereigns or pounds ster- 
ling, and in the construction of contracts payable 
in sovereigns or pounds sterling ; and this valu- 
ation shall be the par of exchange between Great 
Britain and the United States. 

The weights of the metric system were legalized. 
The following coins have been issued at various 
times and their coinage afterward discontinued : 
Gold. Dollar, three-dollar piece. 
Silver. Trade dollar, twenty-cent piece, half- 
dime; three-cent piece. 

Nickel. Three-cent piece, cent. 
Bronze. Two-cent piece. 
Copper. Cent, half-cent. 

The Silver Dollar. By the act of February 28, 
1878, " To authorize the coinage of the standard 
silver dollar, and to restore its legal -tender 
character," it was provided: "There shall be 
coined, at the several mints of the United States, 
silver dollars of the weight of 412.50 grains troy 
of standard silver, as provided in the act of 
January 18, 1837, on which shall be the devices 
and superscriptions provided by said act ; which 
coins, together with all silver dollars heretofore 
coined by the United States, of like weight and 
fineness, shall be a legal tender, at their nominal 
value, for all debts and dues, public and private, 
except where otherwise expressly stipulated in 
the contract. And the Secretary of the Treasury 






H - 



is authorized and directed to purchase, from time 
to time, silver bullion at the market price thereof, 
not less than two million dollars' worth per month 
nor more than four million dollars' worth per 
month, and cause the same to be coined monthly, 
as fast as so purchased, into such dollars ;" any 
gain or seigniorage arising from this coinage shall 
be accounted for and paid into the Treasury. 
Certificates for gold coin and bullion deposited in 
the Treasury were not to be paid in silver dollars. 

This act also provided that any holder of silver 
dollars might deposit the same with the Treasurer 
or any Assistant Treasurer of the United States 
in sums not less than %\o and receive therefor 
certificates of not less than $io each, correspond- 
ing with the denominations of the United States 
notes. The coin deposited for or representing the 
certificates shall be retained in the Treasury for 
the payment of the same on demand, such certifi- 
cates to be receivable for customs, taxes, and all 
public dues, and, when so received, may be reis- 
sued. By the act of August 4, 1886, the issue of 
silver certificates of the denominations of one, 
two, and five dollars were authorized. 

The coinage act of January 18, 1837, provided 
that no silver ingots should be used for coinage 
of which the quality differs more than three- 
thousandths from the legal standard (i. e., nine- 
tenths fine); and in adjusting the weights of the 
coins, the following deviations from the standard 
weight shall not be exceeded in any of the single 



pieces : in the dollar, one grain and a half. Per- 
haps, therefore, under the act of February 28, 
1878, a silver dollar is a legal tender, provided its 
fineness is not less than 0.897, and its weight not 
less than 411 grains. 

By the act of July 14, 1890, the Secretary of 
the Treasury was directed to purchase, from time 
to time, silver bullion to the aggregate amount of 
four million five hundred thousand ounces, or 
so much thereof as may be offered in each month, 
at the market price thereof, not exceeding $1 for 
371% grains of pure silver, and to issue in pay- 
ment of such purchases of silver bullion, Treas- 
ury notes of the United States, to be prepared by 
the Secretary of the Treasury, in such form and 
of such denominations, not less than $1 nor more 
than $1,000, as he may prescribe, which notes 
shall be redeemable in coin at the Treasury of 
the United States or at the office of any Assistant 
Treasurer of the United States, and when so 
redeemed may be reissued, but no greater or 
less amount of such notes shall be outstanding at 
any time than the cost of the silver bullion and 
the standard silver dollars coined therefrom then 
held in the Treasury purchased by such notes, 
which notes shall be a legal tender in payment of 
all debts, public and private, except otherwise 
expressly stipulated in the contract, and shall be 
receivable for customs, taxes, and all public dues, 
and when so received may be reissued. That on 
demand of the holder of any of the said notes 




; ? 





the Secretary of the Treasury shall, under such 
regulations as he may prescribe, redeem them in 
gold or silver coin, at his discretion, it being the 
established policy of the United States to main- 
tain the two metals on a parity with each other 
upon the present legal ratio, or such ratio as may 
be provided by law. That the Secretary of the 
Treasury shall each month coin two million 
ounces of the silver bullion purchased under this 
act, into silver dollars, until July i, 1891, and after 
that time he shall coin as much of the bullion as 
may be necessary to provide for the redemption 
of the Treasury notes herein provided for, any 
gain or seigniorage arising from such coinage to 
be accounted for and paid into the Treasury, 
the purchase clause of the act of February 28,' 
1878, being, by this act, repealed. By the act of 
November i, 1893, the purchase clause of the act 
of July 14, 1890, was repealed, it being also 
stated that it is hereby declared to be the policy 
of the United States to continue the use of both 
gold and silver as standard money, and to coin both 
gold and silver into money of equal intrinsic and 
exchangeable value, such equality to be secured 
through international agreement, or by such safe- 
guards of legislation as will insure the mainte- 
nance of the parity in value of the coins of the two 
metals, and the equal power of every dollar at all 
times in the markets and in the payment of debts. 
And it is hereby further declared that the efforts 
of the Government should be steadily directed to 


the establishment of such a safe system of bimet- 
allism as will maintain at all times the equal power 
of every dollar, coined or issued by the United 
States, in the markets and in the payment of debts. 
Gold Certificates. By the act of July 12, 1882, 
the Secretary of the Treasury was authorized and 
directed to receive deposits of gold coin with the 
Treasurer or assistant treasurers of the United 
States in sums* not less than $20, and to issue 
certificates therefor in denominations not less 
than $20 each, corresponding with the denom- 
inations of the United States notes. The coin 
deposited for, or representing, the certificates 
of deposits shall be retained in the Treasury for 
the payment of the same on demand, which shall 
be receivable for customs, taxes, and all public 
dues, and when so received may be reissued ; also 
that the Secretary of the Treasury shall suspend 
the issue of such certificates whenever the gold 
coin held in the Treasury reserved for the 
redemption of United States notes falls below 


The money of the United States, on July i, 
1896, according to the report of the Treasury 
Department, consisted of : 

Gold coin $567,931,823 

Silver dollars 430,790,041 

Fractional silver coin 75 .730,781 

United States notes 346,681 ,016 

Treasury notes 129,683,280 

National bank notes 226,000,547 

Total $1,776,817,488 , 



i v 

To which add the nickels and cents. The 
Treasury held $111,803,340 in gold, of which 
$42,818,189 was represented in circulation by gold 
certificates. The various banks and banking 
concerns held about $300,000,000, and the residue 
was estimated as held among the people, gold 
com being rarely seen in circulation, unless in 

The silver dollars, excepting about sixty 
millions, were represented in circulation by silver 
certificates. Experience proves that less than one 
silver dollar per unit of population is all that can 
be kept in circulation; any excess is returned to 
the Treasury and certificates taken out instead 
The free coinage of silver signifies a currency of 
silver certificates with the silver warehoused in 
the Treasury; without them the people would not 
tolerate a bulky currency of silver dollars. 

The fractional silver and minor coins being 
necessary in any case, in commenting on the 
currency they may be omitted. 

The quantity of United States notes is a fixed 
amount, which is probably diminished by loss 
from use and accident. 

The quantity of Treasury notes decreases as 
the silver purchased by them is coined into 

The National bank notes are a variable quan- 
tity, and are redeemable in lawful money at the 
bank of issue; also at the Treasury in United 
States notes, when presented for redemption in 



sums of $1,000 or any multiple thereof. In 
October, 1896, there were 3,679 National banks; 
also 4,944 State banks and trust companies; 764 
(State) savings banks, and 3,552 private banks. 
(Report of the Comptroller of the Currency for 
1896, Vol. I, p. 33.) As only National banks can 
issue bank notes, their issue is no essential part 
of the banking business, for otherwise all State 
and private banks would have died out. 

The above statement shows that the money of 
the United States consists of about one-third 
standard gold coin and two-thirds paper and silver 
dollar tokens, the bullion value, in 1897, of the 
silver dollar being less than one-half its nominal 
or legal-tender value. 

During the administration of Mr. Cleveland 
there was a great demand for gold, caused by the 
inflated condition of the currency, the proposal 
indorsed by him to repeal the 10 per cent tax on 
State bank notes, and the renewed agitation for 
free silver. Owners of foreign capital wanted to 
remove it from the country, and home capitalists 
preferred gold coin to silver dollars or bank notes 
redeemable in them, and followed the example 
set by the banks of hoarding gold. This demand 
fell on the gold reserve held by the Government 
for the redemption of the United States and 
Treasury notes, gold not being obtainable in 
exchange for silver dollars, silver certificates, or 
bank notes. During the fiscal years 1895 and 1896 
the net export of gold exceeded $109,000,000. 



The Secretary of the Treasury (Mr. Carlisle), 
in his December, 1894, report, said, concerning the 
demand for gold : " With a current revenue in- 
adequate to defray the ordinary current expenses, 
and practically no receipts of gold from customs 
or other sources, it was evident that the Treasury 
would be unable to meet even the usual demand 
for export, which, however, would probably be 
much augmented by the increased apprehension 
produced by the depleted condition of the re- 

The ''usual demand for export" arose and 
arises from stuffing the currency with tokens. If 
the act of July 14, 1890, for the purchase of fifty- 
four million ounces of silver bullion per annum 
had not been, providentially, repealed November 
I, 1893, there would have been added to the 
already overstock of silver, by November i, 1897, 
two hundred and sixteen million ounces, which 
would make, when coined, $278,640,000 in silver 
dollars. A repeal of the 10 per cent tax on State 
bank notes would have flooded the already in- 
flated currency with that kind of paper tokens. 
The free coinage of silver would have dumped 
an immense quantity of that material into the 
already bloated currency. 

There were ''practically no receipts of gold from 
customs or other sources'' because silver dollars, 
silver certificates, and Treasury notes were pay- 
able and paid for duties on imports, and other 
revenues were payable in silver dollars, silver 




certificates, National bank notes. Treasury notes, 
and greenbacks, and paid in them, greenbacks and 
Treasury notes excepted. 

Secretary Carlisle, in his December (1896) re- 
port, said the excess of expenditures during 
the three fiscal years 1894-5-6 over the receipts 
from the ordinary sources of revenue was $1 37,- 
811,729.46. And he estimated a deficit for the 
fiscal year 1897 of $64,500,000; and for the fis- 
cal year 1898 of $45718,970.60. He also said 
therein: Since March i, 1893, United States 
bonds to the amount of $262,315,400 have been 
issued and sold for $293,481,894.90 in gold. Also 
that : Singe the resumption of specie payments 
on January i, 1879, United States notes to the 
amount of $470,490,987, and Treasury notes issued 
under the act of 1890 to the amount of $86,428,881, 
have been redeemed in gold. 

The $262,315,400 of bonds were issued and sold 
tinder the resumption act of January 14, 1875, to 
replenish the gold reserve ; the United States and 
Treasury notes redeemed were reissued in pay- 
ment of expenditures, and thus the deficit in the 
revenue was made good. By the sale of these 
bonds a suspension of payment of all kinds of de- 
mands in any kind of money was avoided. The 
great demand for gold to export and to hoard was 
a godsend to this low-tariff administration. 

If gold is bought for redemption purposes and 
to maintain the gold standard, and Government* 
notes are redeemed in gold, and the notes there- 

Il ' 



upon are paid out for expenditure, there is noth- 
ing to be charged to the notes as cost for their 

In 1877 ^^^ 1878 ninety millions of bonds were 
sold for gold which was held for resumption pur- 
poses ("Money and Politics," Upton, pp. 150-52), 
("United States Notes," Knox, p. 141). And no 
more bonds were sold for resumption purposes 
until those issued and sold by Secretary Carlisle 
as above mentioned. 

The gold reserve January i, 1879, proved to be 
unnecessarily large. At that date the amount of 
coi^ held in the Treasury as available for resump- 
tion purposes, after deducting all matured coin 
liabilities, was $135,000,000; and during that 
entire year only $1 1,456,536 in legal-tender notes 
were presented for redemption ("Money and 
Politics," Upton, p. 155). 

The receipts from customs (coin) during the 
fiscal year 1864 were $102,316,152.99; in 1866, 
$179,046,651.58; in 1867, $176,417,810.88 ("Mc- 
pherson's Histor>' of Reconstruction," p. 375). 
By the act of March 17, 1864, the Secretary of the 
Treasury was authorized to anticipate the pay- 
ment of interest on the public debt by a period 
not exceeding one year, either with or without a 
rebate of interest on the coupons, as to him might 
seem expedient ; also, to dispose of any gold in 
the Treasury not necessary for the payment of 
'interest on the public debt, etc. Sales of gold 




were thereafter frequently made during and 
after the war. 

Whether legal-tender notes were redeemed on 
and after January i, 1879, with ^^^^ received from 
customs or with coin belonging to the gold reserve, 
and the notes reissued in payment of expendi- 
tures, there is no proper charge to be made 
against them for the cost of their redemption. 
Suppose the reserve held for resumption purposes 
was originally intended to be, and in fact was, 
$100,000,000; to this add $293,481,894.90 realized 
by Secretary Carlisle from the bonds sold by him; 
there ought to be now in the Treasury a gold 
reserve of $393, 481, 894. 90» ^^^ ^11 the United 
States notes are still outstanding ; also all of the 
Treasury notes which have been redeemed in 
gold. But the fact is, that not only the whole of 
the original gold reserve, but also that added to it 
by Secretary Carlisle, except the part of it which 
may still remain in the Treasury, has been used 
in payment of current expenses, in this way, 
to wit, United States and Treasury notes being 
redeemed in gold have been reissued and paid 
out in discharge of Government dues. 

Whatever charge is proper against the United 
States notes on account of the gold reserve, no 
charge can be made against them for any part of 
the $86,428,881 paid out in gold for the redemp- 
tion of Treasury notes. Secretary Carlisle said : 
"Since the resumption of specie payments in 
January i, 1879, United States notes to the amount 



of $470490,987 have been redeemed in gold," i. e. 
to December, 1 896. How can this be, for the gold 
reserve proper is not over $100,000,000? 

By the act of February 28, 1878, for the coinage 
of silver dollars, only twenty-four million dollars* 
worth of silver bullion was coined per annum, so 
that for a long period of time duties on imports 
were paid almost entirely in gold. But as time 
elapsed the quantity of silver dollars and silver 
certificates increased, and also the part of the 
customs paid in them. By the act of July 14, 1890, 
four and one-half million ounces of silver bullion 
were to be and were purchased monthly, and 
Treasury notes issued therefor, which notes were 
also receivable for customs, so that by 1893, as 
Secretary Carlisle said, there were "practically no 
receipts of gold from customs or other sources." 
According to his reports for 1894 and 1896, the 
receipts from customs were, for the fiscal years — 

1893 $203,355,016 73 

1894 131,818,530 62 

1895 152,158,617 45 

1896 160,021,751 67 

Suppose these amounts had been paid in gold, 
or chiefly in gold, as duties were in 1879 ^^^ ^or 
a long time thereafter, legal-tender notes could 
have been redeemed with the gold, and the notes 
thereupon paid out for Government dues con- 
tinually and to very large amounts. But by 
stuffing the currency with bank notes. Treasury 
notes, silver dollars, and silver certificates, the 



Government has been put into the condition that 
if gold is demanded on any liability which is pay- 
able in coin— e. g., funded debt, interest thereon, 
etc. — the gold must be bought or payment in gold 
refused, for an exchange of Treasury notes and 
greenbacks for gold is an unreliable makeshift. 
The evil day was only deferred by the repeal of 
the silver purchase act of 1890, and the purchase 
of $293,481,894.90 in gold by Secretary Carlisle. 

The redeeming and reissue (in payment of 
expenses) of the legal-tender notes was called by 
Mr. Cleveland "an endless chain," which worked 
well for him. But as he believed that his suc- 
cessor by, e. g., a McKinley bill, would raise a 
revenue sufficient to pay expenses, he recom- 
mended, as a parting bequest, the withdrawal and 
cancellation of the legal-tender notes, at which 
suggestion the whole banking fraternity pricked 
up their ears. For, with an adequate revenue, the 
notes could not be reissued after their redemption 
(unless they were given away). This great void 
in the currency might be filled with bank notes, 
but the free silver party think it might be filled 
with silver dollars, and if bank notes were sup- 
pressed that void also might be filled with the 
same metal. 

Perhaps if the currency were let alone, the 
country might eventually grow out of its present 
financial slough of despond. But if it is to be 
doctored in order to make it "sound," and a 



money commission composed of experts is to be 
appointed to suggest the proper method, perhaps 
it would be judicious to have such commission 
composed one-half of bankers and the other half 
of free silverites. 

When the Government ** goes out of the bank- 
ing business," by withdrawing the United States 
and Treasury notes, e. g., by funding them, it will 
be necessary also to abolish the currency bureau, 
and repeal the act making bank notes a legal 
tender to and from the Government. When gold 
is needed to pay interest or principal of the public 
debt, or for any purpose requiring it, the gold 
must, as now, be bought. 

Those engaged or ready to engage in ''the 
banking business " of issuing paper money insist 
that a " sound " currency might and ought to con- 
sist of bank notes redeemable in ** lawful money." 
With the Government notes out of the way this 
would be gold coin and silver dollars. If the 
bank notes were made redeemable in gold coin 
only, that would violate " the established policy 
of the United States to maintain the parity 
between the two metals." Supposing the cur- 
rency to consist of one-third standard coin and 
two-thirds bank notes ; there is already a sufficient 
or nearly sufficient stock of silver for the purpose. 
For there was purchased and coined under the 
act of February 28, 1878, 291,272,018.50 fine 
ounces, and under the act of July 14, 1890, 168,- 
674,682.53 fine ounces (Mint Report of 1895, p. 



209). These amounts taken together are sufficient 
to coin into $594,665,089 in silver dollars. 

The advocates of free silver think that a 
"sound" and simple currency might and should 
consist of silver dollars and silver certificates. It 
is quite obvious that a silver certificate is quite as 
" elastic " as a bank note for the same amount. 

Instead of the present mongrel currency, the 
money of the United States might have consisted 
of two-thirds gold coin and one-third United 
States notes. There was coined at the mints of 
the United States from January i, 1873, to June 
30, 1896, $1,020,722,143 in gold coin, which, with a 
part of the $793,970,110 coined prior to 1873, 
would have been quite sufficient for the purpose. 
In such case any demand for an additional 
quantity of paper money for use in active circu- 
lation could have been supplied by additional 
issues of United States notes for a like amount in 
gold coin deposited in the Treasury. This coin 
would have been quite sufficient to redeem all 
the notes which would ever have been presented 
for that purpose. The United States, Treasury, 
and National bank notes outstanding July i, 1896, 
amounted to $702,364,843, to which add the silver 
and gold certificates to ascertain the amount of 
paper money then extant. With a currency as 
above, the " endless chain " would have needed no 
lubrication. Also, a greenback is as "elastic" as 
a bank note for the same amount. 

If the gold standard is to be maintained the 



National bank notes ought to be suppressed; 
State bank notes kept so ; no more silver dollars 
coined ; and the present stock of them and of un- 
coined bullion recoined at the commercial ratio. 
There is at present more than loo per cent profit 
in coining silver dollars and shipping them into 
the country. And this practice has commenced 
on quite a large scale. (Report of the Director of 
the Mint for 1896, p. in.) 

In the interest of a bank-note currency it is 
insisted that while United States notes are good, 
and of a uniform value at all times and places! 
yet, like many other good things, they are too 
expensive. And to magnify this, the endless 
chain argument has been worked to an absurd 
extent by persons high in office, as see Report 
of the Comptroller of the Currency for 1896, p. 
108. The United States notes being still out- 
standing, the gold reserve held for their redemp- 
tion ought to be in the Treasury in its entirety, 
no matter how often the notes have been 
redeemed, unless on their reissue they were 
given away. As before stated, the original gold 
reserve consisted of the proceeds of the sale of 
bonds to the amount of $90,000,000, of which 
$65,000,000 bore interest at 414 per cent, and 
$25,000,000 at 4 per cent. The 4^ per cents were 
sold at I y2 per cent premium, the 4 per cents at 
par. The interest annually on the $90,000,000 
was $3,925,000. From January i, 1879, to Jan- 
uary I, 1897, is eighteen years, for which period 



the above annual interest amounted to $70,650,000. 
If the greenbacks had been funded January i, 
1879, to wit, $346,681,016 into $250,000,000 of 4j^ 
per cents and $96,681,016 into 4 per cents, the 
people would have been taxed annually the inter- 
est on these sums, to wit, $15,1 17,240.64, which in 
eighteen years make an aggregate $272, 109,33 1 .62. 
Deducting from this the interest paid on the 
ninety millions of bonds, to wit, $70,650,000, 
leaves $201,459,331.62 as the amount saved by the 
people during the eighteen years by using their 
own notes for money. And a much greater 
amount than this would have been saved if 
United States notes had occupied the place of 
the National bank notes. For the currency 
would have been no more inflated with paper 
money, and no greater gold reserve would have 
been required to maintain the gold standard. 
All of the legitimate banking business would 
have been done by State and private banks, issu- 
ing no paper tokens. Since March 3, 1883, the 
National banks have paid a tax of i per cent 
annually on their circulation, and before and 
since that time they have paid no other taxes 
than have been charged to other banks, nor have 
they performed any services for the Government 
which such other banks could not have rendered 
and gained a large profit thereby. 

It is about time for the Government to regulate 
the value of money by furnishing the whole of it, 
either gold coin and paper representing it or 



silver coin and paper representing it. No bank 
notes are needed in either case. Bimetallism is 
impossible except at the commercial ratio, and 
that has become so variable that no one nation 
can now control it. 

Date Due 


» t 

JUL -6 W^^>